George Osborne meeting Tesco distribution centre staff near Rugby the night before the release of GDP figures. Photograph: Stefan Rousseau/PAWhen he was at the Treasury, Gordon Brown enjoyed waxing lyrical about Britain's growth record under Labour. The number of successive quarters of expansion had risen above 60 by the time Brown became prime minister, allowing him to trumpet the longest uninterrupted period of rising national output since the dawn of the industrial age.
Back then, news of a 0.6% quarterly increase in gross domestic product would have been neither here nor there. The economy grew by around 2.25%-2.5% on average for more than a century, or around 0.6% a quarter. In the City and at Westminster, Thursday's release from the Office for National Statistics would have been shrugged off as no big deal.
Times change, though. After the long expansion of 1992-2007, the economy plunged into recession in early 2008 and has yet fully to recover. Had it continued to grow at its average pace, national output would now be around 13% higher than it was before the downturn began; in fact it is still 3.3% lower even after the pick-up in the second quarter. In round numbers, the economy is £250bn smaller than it would have been had the recession never happened.
All of which makes Thursday's growth figure a very big deal indeed. George Osborne was in the Midlands on the night before the release of the GDP figures talking to workers in Britain's 24-hour economy because the chancellor knows that politics between now and the general election will be shaped by the argument over growth. Ed Balls knows that too, which is why the shadow chancellor was eager to point out that Britain's recovery was the slowest in a hundred years.
Osborne has not had an easy three years as chancellor. His plan for economic recovery is at least two years behind schedule and the idea of rebalancing growth towards exports and manufacturing has been quietly ditched in favour of the time-honoured remedy to weak activity: ramping up the housing market. Progress in reducing the budget deficit has stalled, and while unemployment has risen far less sharply than in the recessions of the 1980s and 1990s, workers have been forced to accept below-inflation pay increases or fewer hours to keep their jobs.
This matters politically. Governments that preside over periods when wages are growing more slowly than prices – Labour in the late 1970s for example – tend to lose elections. Those that are in power when living standards are rising – the Conservatives in the 1980s, Labour in the late 1990s and early 2000s – tend to get re-elected.
Even in times when growth has been strong and real incomes rising, no government since 1955 has been re-elected with an increased share of the vote, and David Cameron won only 36% in 2010. Little wonder then that the chancellor noted cautiously on Thursday that there was a long way to go.
But Osborne is not the only one with a headache. Labour has a far smaller lead in the opinion polls than it would need to feel comfortable about winning a general election in 2015, particularly in the context of a lost decade of living standards, austerity that will extend well into the next parliament and a recovery that is comfortably weaker than that which followed the Great Depression. Despite all that, voters have more faith in Osborne than Balls to run the economy, a testimony to the fragility of Labour's position.
When he became shadow chancellor, Balls faced three challenges: he had to make a convincing case that Labour was not single-handedly responsible for the slump of 2008-09 and the record peacetime deficit that resulted; he had to show that Osborne's austerity plan would hinder rather than hasten recovery; and he had to deliver an alternative to the coalition's strategy that would persuade voters it was worth giving Labour another try in 2015.
So far, his record is one out of three. Labour's warnings about the perils of austerity were borne out by two years in which the economy moved sideways. But the notion that Labour's profligacy in power threatened Britain with bankruptcy was well entrenched by the time Balls became shadow chancellor and has been hard to shift. Likewise, Labour's offer of austerity-lite after 2015 has not exactly caught the imagination of the public. There has been little to suggest so far that the opposition has the answers to Britain's long-term structural problems: the decline of manufacturing; the over-reliance on the City; the decades-long squeeze on wages that has encouraged debt-fuelled consumption.
Labour's position will be yet more difficult should the economic news remain even modestly good. Osborne wants to go into the next election with the following message: we inherited a right old mess from the last lot; that mess has taken us longer than we expected to clear up; we stuck to our plan when the opposition told us to change course; the benefits are now coming through; so don't hand power back to the people who screwed up in the first place. He doesn't need the economy to grow at 1% a quarter to construct this sort of political narrative: 0.6% or so a quarter will do fine.
The government's message will lack potency if the 2015 election approaches with real incomes still falling and fresh public spending cuts on the horizon. It will be blown out of the water if the economy stalls again between now and the election, something that currently looks unlikely but cannot be entirely ruled out. There will be a reckoning for the economy but that looks likely to be early in the next parliament when the Help to Buy support for the housing market is removed, interest rates start to rise and austerity continues for a sixth and seventh year rather than over the next 18 months.
In the meantime, Osborne, who looked like a dead man walking three months ago, is very much back in the game.
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