A nasty turn of the economic weather

Nick Clegg and George Osborne Image copyright bbc
Image caption On the recovery, Nick Clegg and George Osborne may differ on tone, but agree on substance

The facts have changed. The deputy prime minister is certainly right about that.

Anyone who went on holiday in August came back to find the global economy a much darker place.

Wednesday's grim labour market figures will strengthen the hand of those who say the recovery is in trouble.

The Office for Budget Responsibility forecasts assume that the public sector workforce will shrink by 80,000 a year, on average, between 2010-11 and 2015-16.

Wednesday's figures show public sector employment has fallen by 240,000 in 12 months. The private sector created enough jobs to offset that fall, with an increase in employment of 264,000. But only just.

It is also true, as ministers have pointed out, that unemployment is - slightly - lower than it was six months ago. If you're interested, it's 8,000 lower - the latest figure is 2.510 million, which compares with 2.518 million in the three months to January.

But there are 41,000 more people out of work than there were two years ago, in the middle of the recession. It is getting harder to claim that the labour market is the bright spot of an otherwise feeble recovery.

The change of mood is most striking in the city. Even six weeks ago, you would have struggled to find anyone there betting that the Bank of England would need to pump yet more money into the economy.

Now almost everyone thinks they will be forced to do just that - perhaps as early as next month.

George Osborne has made very clear, in the past week or so, that he would welcome such a move. Indeed, central bank support for the recovery is a key part of his Plan A.

As we know, the ECB and the Federal Reserve feature prominently in US and European plans to rescue the recovery as well. Indeed, quite how central the ECB will be to resolving this stage of the eurozone crisis is something I will be focussing on in a later blog.

'Demand crisis'

Should the UK government do more to respond to the turn in the economic weather? At times on Wednesday Nick Clegg did sound like a man who wished he could announce a Plan B.

"Despite the need to stay on top of the deficit," he said, "the government will do what it takes to return the economy to health... pulling the right levers at home... a gear change for growth."

But "doing what it takes" turned out to mean doing what the chancellor has already said they will do. The tone was different from Mr Osborne. Also some of the language - particularly the talk of a crisis in demand, which could have come from Ed Balls. But on the substance, there was no deviation from the party line.

Presumably, that's because Mr Clegg agrees with the chancellor, and the many economists who see little space for the UK to change course. In their view, wavering on the deficit would hit confidence in the markets and thus do more harm than good.

But he and others also know that confidence works both ways. As in 2008, investors and businesses need also to have confidence in the recovery - and policy-makers' tools for supporting it - or today's doubts about the recovery could become self-fulfilling.

In London last week, the International Monetary Fund's chief, Christine Lagarde, said that the times called for policy makers to act with conviction - but also be nimble, as circumstances changed.

The deputy prime minister isn't the only Western politician today finding that's a difficult balance to pull off.