Osborne warns of "dangerous cocktail" of economic risks

George Osborne
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George Osborne is to say that the UK faces a "cocktail" of the serious threats posed by global economic slowdown in 2016 shapes up to be one of the most difficult since the financial crisis.

The Chancellor will later lay out a litany of risks facing the economy on Thursday in the next 12 months.

This is in contrast to the relatively positive Autumn statement when he said that the UK "is growing rapidly."

People should not become "complacent", that the economy is largely fixed.

There are serious problems, he will say in his speech in Cardiff.

Tensions in the Middle East, slowing growth in China, as well as low commodity prices all weigh on global confidence that he will say in his speech.

On the domestic front, the first rise since 2007, interest rates could come this year.

Treasury sources say that this is not a decision for the chancellor - raising interest rates are subject to the Bank of England - but there are many homeowners with large mortgages, who have never experienced even a small rise in rates.

Unofficially close to Mr. Osborne expressed concern that the growth rate could have an impact on consumer confidence.

Despite what they say, it will mean the return of the UK economy in some semblance of normality.

This is a very sensitive area, and late last night, this part of the speech was still being worked on.

The Chancellor wants to raise this question, but be careful to strike the right tone.

"New threats"

"Anyone who thinks that the mission has been accomplished with the British economy makes a serious mistake," the Chancellor is expected to say in a speech later today in Cardiff.

"Last year was the worst for the global economic growth, as the [financial] disaster, and this year opens with a dangerous cocktail of new threats.

Two workers welded panels of the car at the factory in Sunderland, Nissan, in the north-east of England, 12 November 2014Image copyrightGetty Images
Image output growth slowed captionUK, according to economic surveys
"I'm worried about complacency creeping into the national discussion about our economy.

"The feeling that hard work at home is complete, and we are insured against risks abroad. The feeling we can let up, and the good economic news will just keep rolling.

"We are only seven days in the New Year and already we had concerns news about the stock market falls around the world, a slowdown in China, the deep problems in Brazil and Russia.

"Commodity prices have fallen very significantly. Oil, which amounted to over $ 120 per barrel in 2012, currently stands at less than $ 40.

"It is good for consumers and business customers here in the UK, bad news for the oil and gas industry, worrying for creditors who lent him and a massive problem for countries that depend on it.

"Meanwhile, political developments in the Middle East, with Saudi Arabia and Iran, concern us all."

stagnating

The harsh words of the Chancellor come the same day, the British Chambers of Commerce (BCC) publishes a quarterly economic survey, which gives quite a mixed assessment of business confidence in the UK economy.

Evidence is likely to worry Mr Osborne of the survey of more than 7,000 firms that Britain risks becoming a "two-level" of the economy.

The protest in Basra, Iraq, 6 JanImage copyrightAFP
Image captionPolitical events in the Middle East concerns us all, the Chancellor says
The services sector, which includes retail trade, banking and tourism, works well, although confidence about growth in 2016 already lowered.

In the manufacturing industry - the key to the Chancellor's efforts "re-balance" the economy - a grim prospect.

BCC Research suggests that confidence among manufacturing enterprises is below the pre-crisis levels of 2007 and that the sector is in a state of stagnation.

Mr. Osborne loves to talk about the "march of the creators." Someone may say that it is a slow stirring.

"It's not enough to rely on consumer spending and the housing market for economic growth, not to rely solely on services, to stimulate export growth. We need to rebalance the economy," John Longworth, director general of the BCC, said.

"In addition, the government's policy [on the cost of living] has created an irresistible pressure to increase wages settlements, despite the downward pressure on wages created by the continuing migration to the UK.

"Businesses find themselves worn out and stagnation."

Sunny Plateau

On Wednesday, the National Audit Office report revealed the risks faced by major UK infrastructure projects such as road and rail development, the delivery of which is a key component of economic prosperity.

More than a third were in danger or "unreachable" if corrective measures are not taken.

The government can make big promises. Providing them more problematic.

Of course, there is a political edge question, Mr. Osborne.

Chancellor knows very well that if people are concerned about the economy, polls show that they tend to turn to the Conservatives, as a variant of "security."

So, voters concerns, Mr. Osborne said, it's not always a bad thing for his party.

I was told that there will be some "sunny uplands" elements in the speech from the Chancellor that growth in the UK was better than "almost everyone dared to hope."

But, with his dark boots, the Chancellor tramping pretty familiar territory.