George Osborne's speech in Wales is a defence of his austerity project

Richard Edgar

Former Economics Editor

Scrooge is late.

George Osborne has adopted the form of the miserable character just after Christmas as he makes his first major speech of the new year ­ and it's full of "Bah! Humbug".

In a speech to business leaders in Wales today, the chancellor will warn of "a dangerous cocktail of new threats to the economy and that the only antidote is confronting complacency and sticking to the course we've charted."

ITV News economics editor Richard Edgar reports:

In remarks released to the press ahead of the speech, he highlights the slowdowns in China, Russia and Brazil, the slump in commodity prices and the turmoil in the Middle East as tensions rise between Iran and Saudi Arabia.

All these present threats to our own economic stability, he says.

He's right.

The outlook for the world economy this year is unusually uncertain.

No lesser figure than George Soros, the billionaire financier, has joined the chancellor this morning (speaking, however, at a rather more exotic conference in Sri Lanka) to warn that China's struggle for a new direction: slowing investment and manufacturing, switching to consumption and service industries, gradually allowing its currency to devalue against the US dollar, is transferring its problems to the rest of the world.

"I would say it amounts to a crisis", said Mr Soros, adding "When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008."

Indeed trading on the Chinese stock markets was halted for the second time this week after shares lost seven per cent of their value.

The instability has spread to global markets, creating "the worst opening week to a new year anyone can remember" as Bill Blain, a bond trader at Mint in London, writes in a note this morning.

So the backdrop to our own economic growth is indeed precarious. But I think the motive behind the chancellor's warning is more to do with protecting his plans for austerity.

The complacency he sees building in the country, as our economy shows steady growth (if slower than expected until recently), is that voters will question why he is sticking to his plans for austerity.

A slowdown in China could be bad news for the global economy. Credit: Reuters

His Autumn Statement only weeks ago set out cuts which will see central funding of local government, for example, cut by 79% over the ten years that he will have been chancellor by the end of this parliament.

These cuts are beginning to be felt more keenly and I expect the public tolerance to fall in months and years to come, putting pressure on Mr Osborne.

Warning that he has to stay the course to get public finances on track is his way of fending off criticism.

Ironically, economists reckon that the foreign threats to our economy are doing far less damage to growth so far than the very austerity Mr Osborne is imposing.

Whatever the merits of his long-term economic plan, cuts in government spending are taking the shine off our growth now and for the next year at least.