Economy in nosedive, Cabinet and backbench splits, U-turns on policy. Is this another ‘worst day’ of news for David Cameron?

Stagflation
‘Spectre of stagflation returns to haunt UK’ (FT splash) – ‘Triple-dip looms as sterling hits 3-year low’ (Guard p24) – ‘Britain in line for triple-dip recession amid poor industry figures’ (Tele business p1) – ‘Fears of a triple-dip recession increase as Osborne’s recovery plan fails to bear fruit’ (Ti p4) – ‘Triple-dip fears revived by output slide’ (Indy p51) – The prospect of stagflation has returned to the UK as investors bet on a sharp jump in inflation to its highest level in almost five years, write Keohane/Jones. UK inflation expectations, as measured by the difference between nominal and inflation linked bond yields, ticked up to near 3.3% on Tuesday, levels not seen since September 2008. Investor fears that the UK could be simultaneously hit by stagnant growth and high inflation, as experienced in the 1970s, were exacerbated by poor economic data pointing to the probability of another economic contraction in the first quarter of this year. Sterling, meanwhile, fell 0.5% against the dollar to $1.4832, its lowest level since June 2010. Currency traders were spooked by ONS estimates that manufacturing output fell by 1.5% between December and January – and by 3% in the 12 months to January. Separately, the National Institute of Economic and Social Research said the economy continued to flatline in the first two months of 2013. Howard Archer, of IHS Global Insight, said the manufacturing figures were “awful”. Sterling has fallen 8.5% against the dollar since the start of the year. After the yen, it is the second worst performance by a major currency against the greenback. The pound’s fall highlights divergent investor views on UK and US economic prospects. While the US economy is slowly picking up pace, the UK economy remains flat at best and investors are starting to price in the chance of eventual policy tightening by the Federal Reserve. (FT)

U-Turn on bedroom tax
Bedroom tax ‘IDS rows back on bedroom tax’ (Guard p4) – ‘Exemptions for military families and carers leave bedroom tax ‘in chaos’’ (Indy p4) – ‘IDS gives extra ground on ‘bedroom tax’’ (FT p4) – ‘No ‘bedroom tax’ for forces’ (Tele p14) – ‘IDS retreat over bedroom tax’ (Ti p11) – IDS, has denied claims that his controversial bedroom tax policy has descended into “total chaos” after he announced a partial U-turn to exempt foster carers and parents of teenage armed forces personnel from the charge, just three weeks before it is due to come into force, writes Butler. The concessions came in a written ministerial statement after weeks of growing political pressure. The changes will mean that about 5,000 approved foster carers will now be exempted from the bedroom tax, which from April will see people in social housing charged for empty bedrooms. They will be allowed an additional room as long as they have fostered a child or become a registered carer in the past 12 months. Parents whose children live at home but are away on operations with the armed forces will also not be charged for their child’s “spare bedroom”, as long as their offspring intend to return home. IDS said he had also issued guidance to local authorities emphasising that discretionary payments would be available to support “other priority groups” affected, including “people whose homes have had significant disability adaptations and those with long-term medical conditions that create difficulties in sharing a bedroom”. Byrne: ‘Cameron’s Bedroom Tax has descended into total chaos.

U-Turn on minimum alcohol pricing
Alcohol price ‘Tories force Cameron to abandon alcohol plan’ (Ti p1) – ‘PM forced into a humiliating U-turn on cheap booze by Cabinet revolt’ (Mail p4) – ‘Cameron scraps alcohol pricing plan’ (Tele p1) – ‘Cheap alcohol ban shelved after Cabinet fails to agree’ (Indy p15) – Cameron’s plan to tackle binge drinking by introducing a minimum price for alcohol is to be shelved after a revolt by Conservatives, write Savage/Watson. The PM hoped that forcing retailers to sell beer, wine and spirits for at least 45p per unit would curb antisocial behaviour. But fierce opposition within the Cabinet and on the Tory backbenches has forced ministers to ditch the plan. The U-turn is a blow to Cameron who had personally championed the move as a way of tackling problem drinking, insisting that it would not hit family budgets. Tories warned that the move would unfairly hit Middle England voters and risked falling foul of European law. May is among ministers to have voiced concerns about the plan. Several others in the Cabinet have claimed that it will hit those who drink responsibly. Pickles and Gove, are also understood to have been sceptical. Lansley said that the proposal would be “more likely to have a bigger proportionate impact on responsible drinkers who happen to be low-income households”. Wollaston said she was “very concerned” about the move. Crouch: ‘I really hope rumours of U-turn on minimum unit pricing for alcohol are not true. We must tackle problem of easily accessible cheap alcohol.’ Downing St would not confirm that the proposals had been ditched last night. (Ti)

Backbench splits
Redwood ‘Cameron’s backbenchers demand tax cuts to put confidence back into the economy’ (Tele p14) – Conservative MPs want tax cuts to “stimulate greater confidence” in the UK economy, a leaked email has revealed. The email, sent by Redwood makes clear that Tories also want the Coalition to squeeze public spending further. Email from Redwood: ‘The top running ideas are all proposals to offer tax cuts to stimulate greater confidence, more enterprise, and to relieve some of the squeeze on the private sector.’ Redwood suggested that Osborne should raise the threshold for higher-rate tax, “taking more people out of 40p tax instead of putting more in”. The email also suggests that as Osborne tries to balance the budget, he should do more to curtail spending. Osborne: ‘We are rebalancing the British economy from all the problems of the past.’ (Tele)

Cabinet Splits
‘Gove hits out at May for undermining Cameron’ (Guard p2) – ‘Cameron tells Tories to stop feuding’ (FT p2) – ‘Gove mauls May in leadership dust-up’ (Mail p2) – ‘Stop attacking PM on Twitter, Tory MPs told’ (Mail p18) – ‘Control your cabinet before lecturing us, Tories tell PM’ (Tele p14) – ‘Don’t use twitter to wrote off our election hopes, Tory MPs are told’ (Ti p11) – ‘Angry Cam: Stop slating our failures’ (Mirror p2) – Gove has challenged May to stop undermining Cameron when he spoke out at a meeting of the Conservative political cabinet against prominent Tories who are promoting their leadership credentials, writes Watt. In a sign of Downing Street’s extreme irritation with the home secretary, who set out her political creed in a wide-ranging speech on Saturday, the education secretary made clear that such a high-profile intervention played into the hands of the Tories’ opponents. The move by Gove shows that No 10 believes the growing party indiscipline has spread to the highest levels of the cabinet. It is understood that Gove did not name May but left the political cabinet in no doubt that he had the home secretary in mind after her high-profile speech at the weekend in which she spoke way beyond her formal brief and set out her thoughts on what she called the three pillars of Conservatism. At a meeting of the Conservative parliamentary party, Crosby, who is a famed disciplinarian, said the general election was eminently winnable. But he added that the constant sniping against Cameron on Twitter and the airwaves was unhelpful and playing into the hands of Labour. Wollaston responded by complaining to Cameron that she learned about the warning from the Daily Mail’s website hours earlier. Kris Hopkins was one of the MPs in marginal seats who hit out at the critics. James Forsyth, the political editor of the Spectator, said Hopkins criticised MPs who have been highlighting their leadership credentials as “self indulgent buffoons”. Tory source: ‘These are difficult times but we can be proud that we have achieved a great deal. These were challenges ducked by the last govt in much easier times.’ The decision of Gove, who is one of Cameron’s closest cabinet allies, to confront May shows that the leadership believes that the home secretary is fuelling backbench disloyalty by staking out territory for a future leadership contest. May insists that she is loyal but is being a “realist” in the highly unlikely event of a contest. (Guard) … Dugher: ‘He is reduced to gagging MPs because they might tell it how it is. He is desperately trying to stop his divided party imploding.’ (Mirror)

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