Double dip recession fears as service sector growth stalls.

Osborne can't say that he wasn't warned. And Clegg predicted this might happen; before he changed his mind, ditching everything that he had previously predicted in order that he could form a coalition with the Tories.

The threat of a double-dip recession intensified today after it emerged that Britain's powerhouse services sector saw its growth stall last month, jeopardising hopes of a sustained recovery.

As the Bank of England prepared to announce its latest decision on interest rates tomorrow, a survey of the sector that makes up the bulk of Britain's economic output showed that its growth slipped to its slowest since it emerged from recession a year ago.

Many of the companies surveyed said cancelled public-sector contracts were beginning to hurt their businesses, forcing them to cut jobs and dealing a blow to chancellor George Osborne's hopes of reviving the private sector by reducing public spending.

Keynesian economics state that, at a time like this, the government should be putting money into the system to ensure that people remain employed and that money continues to circulate.

Osborne ignored all the warnings and stated that the most important thing was to reduce the deficit. Clegg, belatedly, came round to Osborne's way of thinking.

Labour today continued to challenge the wisdom of cutting the deficit so hard so soon, in contrast with its own plans. Ed Balls, the shadow education secretary, said: "These warnings show why it is so risky for the government to be cutting public sector contracts now when the recovery in Britain is so fragile and people around the world are worried about a double-dip recession. David Cameron is misguided and wrong to say the most urgent priority for Britain is to slash the deficit. The most urgent priority should be to secure Britain's economic recovery by boosting jobs and growth."

The Con-Dem coalition have taken a horrible gamble - based solely on Tory ideology - that we all have to hope works out. But it's not the route the Labour and many economists wanted the government to go, for the very threat of what now might be on the horizon.

Osborne has this lunatic scheme which states that the private sector will step in when the government retreats. It's completely unproven rubbish, and yet it is now the official policy of the UK government.

The companies surveyed – which account for about 40% of the economy – were only slightly more optimistic than in June, when Osborne's austerity budget hammered their hopes of a swift recovery. Reflecting dwindling confidence and a slowdown in order book growth, they cut staff, casting further doubt over the private sector's ability to provide jobs as government departments are shrunk.

"This survey is representative of the type of trends we are likely to see over the next couple of years – a long and slow grind towards recovery, with public sector cutbacks bearing down on demand," warned Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club thinktank. "Given the impending squeeze on the public sector, the onus is on the private sector to create new jobs. The service sector has been central to job creation over the past decade, so these results highlight the risk of further increases in unemployment as the public-sector cuts begin to bite."

Osborne has taken a terrible risk. But we should remember that he was the man who didn't even want to bail out Northern Rock. He wanted the recession to bite as deeply as it may. He may yet get his wish:

Former Bank of England rate setter David Blanchflower:

'My worry is that Osborne will put us in a double dip and it risks a great depression,' he said.

‘Osborne thinks we can pull the life support and the patient will be just fine.’

The current plan to cut spending is the worst economic decision in a hundred years and we are currently living through a new era of economic mistakes, Blanchflower said.

Echoing recent comments from James K Galbraith, Blanchflower said economic growth only comes from bank lending or government spending.

'The point is if you have no government spending and no bank lending there is no show in town,' he said.

Ideally he thinks we should be doing more to stimulate the economy now and should only focus on shrinking the role of the state once the recovery is sustained.

‘If it [the private sector] is on its knees help it and when it has recovered then move out of the way,' he said.

Osborne was always a horrendous risk for Cameron to take. The man is supremely unqualified for the position he currently holds, and this risk was made clear by many conservatives before the election.

"George is silly; George has poor judgment; George is unreliable; George is, to coin a phrase, a dolt. What credibility does he have left? This has at least caused people to forget what a disaster he made of his attempts (if they can be dignified with such a term) to mount a response to the global financial crisis.

"Can a dolt aspire to hold a great office of state? For little George could be walking out of 11 Downing Street with Mr Gladstone's dispatch box within months.

"How much does that make you want to vote Conservative?"

Cameron has given him his current job because he went to school with him. And now we all have to cross our fingers and hope that this dolt doesn't completely bugger it all up.

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Tags: Osborne, Con-Dem coalition, recession, double dip recession