Will a warm November ruin our economy?

What do a cold winter, a warm spring, a royal wedding, Olympic ticket sales, the Japanese tsunami and the eurozone crisis have in common? Struggling? Well, I’ll tell you: each of these events has been named and shamed by the government this year as a reason for the UK economy’s failure to improve – the reasons for quite so sluggish growth, quite so awful employment statistics and presumably for Cameron’s missing homework.

November 16th saw the release of the latest Labour Force Survey statistics revealing that UK unemployment has reached 8.6% with youth unemployment increasing to 21.9%. All the indicators are going in the wrong direction, and with relatively few redundancies, graduates become one of the worst-hit groups. Chris Grayling, Minister for Employment, blamed it on his predecessor, saying, “These figures are bad news. They are, I’m afraid, the consequence of what we’re seeing in the eurozone.”

Now don’t get me wrong, what’s going on in the eurozone is a big deal, creating worldwide problems. Out of all the excuses on their list, it has the most potential to cause real problems in the UK domestic economy – particularly if any of the weaker economies like Greece or Italy suffer an uncontrolled exit. The crisis is affecting the financial markets but also the export markets. About half our trade is with the eurozone, and if they’re suffering they’re simply not going to be buying quite so much. However, before we let the coalition off the hook quite so easily, there are a couple of things we need to consider.

First of all, our faltering growth and weakening labour market began long before the eurozone crisis became, well, such a crisis. In the first quarter of this year GDP growth stood at 0.4% in the UK whilst France was at 0.9% and Germany 1.3%. In addition, unemployment in particular is a lagging indicator, so effects from the most recent, and in fact, more potent eurozone problems, will not yet show up in the figures. This leaves the Government’s argument relying on other listed “negative shocks” to explain the problems predating this recent crisis. It’s difficult to believe that what seems to be a persistent inability to recover comes from a series of independent, outside events, included in which is a big wedding.

What seems more likely is that it is born out of what has been consistent economic policy since the Coalition took office. Implementing austerity has meant significant job loss in the public sector and whilst Osborne’s promise of private sector compensation has been found wanting, inflation remains high. The resulting squeeze on real incomes is a squeeze on consumption, a component that counts for two thirds of GDP.

Secondly, the eurozone crisis was fairly predictable. As a third-year economics student, I have written essays in both my first and second year on the problems of the eurozone, finding that the debt problems exposed by the financial crisis appeared unsolvable and trouble was on its way. However, it is not only an undergraduate economist that could see this coming – my Nan, whilst sitting on the sofa watching BBC News predicted the eurozone crisis; she spends a lot of time worrying. Given this, even as effects of the eurozone crisis begin to show in our export markets, it is not fair to suggest that an otherwise perfectly forecasted improvement has been spoiled by a nasty surprise. My Nan would have factored this into her plan.

There is an economic argument for austerity and a reason the IMF backed government plans to cut so severely. However, the results of contractionary fiscal policy are, at the moment, bleak for Britain and as a result of this we’re not even going to meet deficit reduction targets. Moreover, since economic recovery started to stall, the government has stopped explaining why they believe we still need to cut and started blaming anything else they can find. Despite its resonance with the Tory back benchers, it is not fair to blame our crisis on Europe’s. The 2.62m unemployed people in this country deserve a proper explanation. And so does my Nan.