• Reshaping of monetary policy under Mark Carney
  • Progress towards deficit reduction targets
  • Avoidance of double-dip recession and return to respectable growth

More to do

  • Work still needs to be done to finalise the delivery of major infrastructure projects


  • The jury remains out on the success of LEPs and the Regional Growth Fund, designed to boost regional economies and small businesses
  • Simplification of the tax code has made little progress

The unexpected 

  • Office of Budget Responsibility revision of forecasts


  • Measures to boost growth fail, leaving the Government with little room to manoeuvre ahead of 2015
  • Uncertainty engendered by Bank of England forward guidance and new criteria for interest rate policy
  • Monetary looseness leads to a housing bubble, higher inflation and negative growth in real incomes
  • Additional Eurozone shocks

George Osborne is still some way from being able to predict with any real confidence the kind of tangible recovery which he hopes will carry the Conservatives into the next general election, but he can undoubtedly claim to have set the economic policy weather.
Framed against bailouts and imposed budgets in the Eurozone, the Chancellor has stuck firmly to his ‘Plan A’.
Although he will fail to meet his initial target to eliminate the structural deficit by 2015-16, he will point to the tortuous delivery of an initial £12 billion in departmental spending cuts as hard evidence of the ‘tough decisions’ which have become the Coalition’s credo.
Expert analysis has not always been kind. The IMF has accused the Chancellor of “playing with fire” by refusing to budge from his deficit reduction strategy during a sustained period of negligible growth which has given Ed Balls plenty of opportunities to perform his favourite ‘flat lining’ gesture from the Opposition front bench.
However, the Chancellor entered 2014 in bullish form with his critics seemingly in retreat, and even the IMF coming round to his strategy.
Mr Osborne used the 2013 Autumn Statement to claim credit for the return to growth, painting a picture of a healthier economy in the future, but also claiming only his policies could see that through. While he had missed his initial targets for deficit reduction, and economic growth remained a fairly modest 1.4%, all the signs seemed to be pointing in the right direction. Suddenly, the Chancellor’s supporters were able to brandish his detractors’ predictions of doom and point out how wrong they had all been.
The major policies for achieving this triumph remained in the hands of the Bank of England. New Governor Mark Carney has issued forward guidance designed to reassure the markets that cheap money will be available for some time to come, with decisions on future interest rates taken in light of unemployment data as well as inflation.
This guidance already appears to be under strain: unemployment is already coming close to the 7% threshold with inflation still ahead of target, but an interest rate rise remains politically very difficult. The Bank may have to interpret its own guidance with some flexibility and will certainly have to consider carefully its next long term statement of intent.
In terms of fiscal policy, austerity has become more or less a permanent state, and any belief in using government spending to stimulate growth is limited to infrastructure projects. The one major exception to this is the help to buy scheme, which has seen a healthy take-up, initially supporting new-build sales.
Whether this scheme injects more inflation into the housing market is another question. And it is in this gap between rising prices and stagnating wages that Labour will be directing all its firepower in the next year and a half. To win the argument, the Chancellor will have to ensure the personal feel of the economy is good, not just the headline figures.

Back to publications