G eorge Osborne has a choice to think about over his summer holiday that will have serious economic and political consequences. Is he going to allow policy to be dragged along in the wake of events, with decisions being shaped on the hoof in response to each new revelation of the UK’s dismal economic performance? Or is he going to try a more proactive approach and reframe his strategy to reflect the way the world has changed since he first set out his plans after the election in 2010?

This week’s grim output figures for the second quarter may have overstated the pace of the slowdown. But the big picture is one of stagnation since late 2010 and a fall in output per head of a shocking 14 per cent from its pre-crisis trend. Recent indicators show business activity has been weakening and the international economy has also been losing momentum. Contrast all this with the post-election forecast from the independent Office for Budget Responsibility, which suggested that growth would be running close to 3 per cent both this year and next.

In response, the government has already slowed the pace of fiscal adjustment, with this year’s target running well below what was set out in its first Budget two years ago. It has also come up with various ad hoc initiatives in areas such as infrastructure development, credit expansion and fuel duty. In addition, the economy has been supported by very accommodative monetary policy.