Investing to avoid double dip recession - Cable

(This is an article from THe Guardian 20 October 2011)The business secretary, Vince Cable, admitted on Wednesdaythe possibility of a double-dip recession as he accepted that the government had been surprised by the collapse in export markets and the sudden rise in energy prices.

He also confirmed his department was working on a package of capital investment spending in time for the autumn statement at the end of November.

Cable was speaking on the anniversary of the government's controversial spending review that set the country on course to eliminate the structural deficit by the end of the parliament.

Cable and the chancellor, George Osborne, are coming under growing pressure from business groups and economics organisations to rethink plans in light of the worsening international economic prospects.

Speaking to ITN, Cable said: "We knew it would be difficult and unpopular, but we didn't know that there would be a major crisis in our export markets and that energy prices would shoot up."

Cable added that there was the "possibility, well indeed the certainty, that we will turn things round".

When asked whether - with soaring unemployment, rising prices and a flatlining economy - it was now time to adjust the government's spending plans, he said his department was working on how to encourage spending on infrastructure before the chancellor's statement at the end of next month. "There is no point pretending this isn't difficult," he said. "The basic discipline is not something the government is doing enthusiastically."

He added: "We are not masochists ... but we are also doing positive things looking at how to create growth through business."

He said he could not promise there would be no double-dip. "We know conditions are very difficult but the government is doing the best it can to protect people," he said.

Chuka Umunna, Labour's shadow business secretary, said: "This is a stunning admission from one of the most senior members of the cabinet. But it is time this government actually took responsibility for their reckless decision to cut spending and raise taxes too far and too fast, which has crushed our economy.

"A year after the spending review, the business secretary should reflect on the fact that confidence has nosedived since it was announced and work out what action he is going to take now to get our economy growing again."

Cable was speaking against a backdrop of an ITN/ComRes poll showing 67% of the British public are now pessimistic about the future of the UK economy, the highest percentage since the index began. Pessimism has increased steadily month by month since the figure stood at 49% this time last year. Just one in five, 22%, is optimistic about the future of the UK economy compared with 37% last October.

The poll found that as a result of the cut, 50% of the public are being forced to make changes to their lifestyle and nearly half (48%) believe their standard of living has deteriorated since October 2010.

Three quarters (73%) say the cost of living nowadays makes them feel concerned about their future and drastically, one in three (34%) agree that things are so bad in Britain they would consider moving abroad.

Less than a third of the public (30%) think the coalition is good for Britain, with half (48%) believing it is bad for the nation. Support has dropped over the course of the year.

Meanwhile, a report by PwC on the first year of the spending review found public sector job losses are now outnumbering private sector job gains."The employment rate in the UK had been relatively strong until recently, but then declined in the second quarter of 2011 when public sector job losses of 111,000 outweighed private sector job gains of around 41,000. Public sector job losses have now totalled around 290,000 since December 2009, with local government bearing the brunt of these cuts with around 163,000 job losses over this period. But all parts of the public sector have seen net job losses, including the NHS and education."

It adds: "It is only in the last three months between March 2011 and June 2011 that public sector job losses have outweighed private sector job gains."