The government needs to provide clarity on how it plans to stimulate growth and new jobs, according to Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD).

Philpott’s comments follow GDP figures, released yesterday, which show the UK economy contracted by 0.5% in Q4.

Philpott told Recruiter: “Stimulating growth for the long term is as much about structural policies rather than spending and tax policy. That’s an area where the government is talking about a White Paper but still hasn’t provided details, which is why they have faced all this criticism from the CBI and others.

“In the short run, the government needs to reverse the increase in VAT and if that doesn’t look as though it will be sufficient, think about scaling back the speed in cuts to public spending job cuts.

“There isn’t any great problem with the UK jobs market structurally. If you were to get sufficient demand motoring along, there wouldn’t be any great problem in stimulating growth and employment. We need to create the conditions for investment in capital, skills and new technology.

“Investment in training is key. Improving capital facilities for business is a key issue for SMEs. I don’t think it is a big concern any more for big firms because it looks like they have plenty of funds for investment.

“Their [large firms] concern is business confidence and whether there is sufficient demand for their goods and services. A lot with depend on domestic markets in the UK and international markets. International markets will probably look better with emerging markets. Domestically, we have high inflation squeezing real incomes and spending cuts and tax rises, so it looks as though the economy is likely to be subdued for a period of time.”

But Paul Smith, senior economist at Markit, told Recruiterthat the action the government can take was limited. “I’m not sure the government can do much more. At the moment, we are at the vagaries of the world economy.

“Manufacturing remains a bright spot. The problem is that it is only about 12% of the economy and probably only around 8% are employed in manufacturing. It’s not going to be meaningful enough to generate substantial employment growth in the UK.

“We really need to see the UK economy growing at 3% a year and that’s not happening. In the 1980s, it had to average around 3% to bring employment down and again in the 1990s and we’re a long way off that.

“The VAT increase is a marginal thing. It is one issue among many others. Households are getting squeezed and that is largely an imported problem. Commodity prices have surged on the back of a booming Asian economy. I can’t see what the Bank of England could have done to prevent this. They can only affect domestic issues. We’re really affected by what happens around us.”