General election 2015: Is this the sudden economic slowdown George Osborne dreads?

Is this the moment George Osborne has been dreading?

As we pass the 100 days until the general election mark, the chancellor will look nervously at the economic data from the final three months of 2014.

The economy is growing strongly. But the pace of that growth is slowing as geo-political issues and renewed volatility in the eurozone put pressure on the British economy.

According to the Office for National Statistics (ONS), UK GDP grew by 0.5% in the final quarter, down from 0.7% in the previous three months.

Over the year as a whole, growth was 2.6%, the fastest pace since 2007 but below the 3% that the likes of the International Monetary Fund (IMF) and Bank of England had been forecasting.

Osborne and the Conservatives want to go in hard on selling the economic recovery to voters in the 2015 election, which will take place on 7 May.

They want to say that the years of austerity will be worth it because the economy will be far healthier, using the ONS data to back them up.

Yet the election itself, on top of myriad other issues, threatens the pace of economic growth in the UK.

"There are clouds looming large on the horizon, and the general election is the biggest of these. Investors don't like uncertainty," Nancy Curtin, chief investment officer at Close Brothers Asset Management, told the BBC.

There are clear lines of difference between Labour and the Conservatives ahead of the latest election.

While there is consensus on the need for austerity, Labour would put more of the burden onto tax rises – such as restoring the top rate of tax to 50p from 45p – rather than spending cuts to public services and Whitehall departments.

And Labour has indicated it is willing to be more active in regulating certain markets, such as the energy sector, than the Conservatives.

Eurozone crisis

On top of the election, the UK economy is working under the shadow of a number of external problems, the most significant of which is the eurozone's ongoing malaise.

The eurozone, the UK's largest trading partner, continues to stagnate amid sluggish work to reform the currency bloc's troubled economies through spending cuts and liberalisation.

To combat the threat of deflation, as the inflation rate hovers just above zero and bank lending continues to fall, the European Central Bank (ECB) will purchase hundreds of billions of euros' worth of eurozone sovereign debt as part of its vast quantitative easing programme.

And the eurozone is hurting from a tit-for-tat sanctions battle between the West and Russia over the latter's military interference in Ukraine. Russia and Europe are large trading partners.

Now it faces political turmoil after the triumph of radical left-wing party Syriza in the Greek election. Syriza has promised to end austerity and defy the terms of its bailout loans.

If concessions are made to keep Greece in the euro, others are also likely to ask for a relaxation of austerity and the necessary structural reform to their economies, such as Spain where the Syriza-esque Podemos are set to win the country's next election in 2015.

"The UK should benefit from the fillip that quantitative easing will provide to the eurozone," said Rain Newton-Smith, director for economics at business lobbyist the Confederation of British Industry (CBI).

"However, this needs to go hand-in-hand with structural reforms, like making France's labour market more flexible and greater infrastructure investment in Germany."

However, the eurozone's economic recovery will happen off the back of a weaker euro. Sterling's value has risen strongly over recent months, meaning buying British exports will be much more expensive for eurozone importers.

This is potentially damaging for UK because it could worsen the gaping trade deficit at a time when the Treasury is trying hard to narrow it.

Oil prices

Falling oil prices offer both positives and negatives for the UK economy. A glut in the global oil supply, as US shale production grows and Opec refuses to cut production, has sent prices tumbling.

On the one hand, this means smaller profits for the oil giants who sit on the London Stock Exchange and pay tax to the UK Treasury, such as BP and Royal Dutch Shell. And they may be forced to shed jobs to keep costs down as oil prices drop, further hurting the UK economy.

Moreover, oil production in the North Sea – another decent source of revenue for the UK economy – is now less profitable because of the market's bumper supply. There is no sign that oil prices have hit their nadir yet.

But lower oil prices is a good thing for consumers, who will pay less for petrol and other goods and services. Price inflation is already falling as a result.

"A key question likely to be asked following today's release is whether this marks the start of a shift to a more moderate growth path for the UK economy; our suspicion is that it does not," said Victoria Clarke of Investec Economics.

"Indeed, we suspect the services and construction sectors are set for respectable performances. On the consumer front the decline in oil prices provides a very tangible consumer windfall in the shape of lower petrol prices."

Investec expects there to be £5bn freed up in consumer spending thanks to lower petrol prices.

Housing recovery

One of the main drivers of the economic recovery has been the revival of the UK housing market. House price growth soared as cheap credit and schemes such as Help to Buy made mortgages easier to access.

But in 2014, the mortgage market began to slow again. Mortgage approval levels remain well below pre-crisis norms and the rapid pace of house price growth has now priced some aspiring homeowners out of the market altogether, particularly as wage growth has been so weak.

Osborne may have temporarily countered this weakness when he reformed the stamp duty system on house purchases in December.

The changes ended the slab system for stamp duty, which created large gaps between transactions at prices just below the cut off points for higher tax rates and where they picked up again.

By flattening this system, there should be sudden house price growth as people have larger deposits because of a lower stamp duty burden, while those selling homes can demand higher prices without deterring stamp duty-conscious buyers.

If this effect materialises, the economic benefit will be felt in the first quarter of 2015 – conveniently for Osborne, just before the general election – and either boost or underpin GDP growth despite the drags on it, such as the eurozone.

Turning point?

Other problems in the UK economy continue unresolved. The headline labour market data is robust. Unemployment has tumbled and employment has hit fresh highs. But wages are still in real terms decline, underemployment is rife and productivity growth is weaker than it should be.

"This is the slowest recovery in modern history," said Frances O'Grady, general secretary of the Trades Union Congress (TUC).

"With most people locked out of the recovery it's no wonder that the economy is failing to do better.

"Families are set to be worse off in 2015 than they were five years ago. A recovery based on low wages and job insecurity is bad for working people, bad for the public finances and bad for growth."

There are signs that wages are picking up again and lower price inflation has given consumers some breathing space when it comes to household bills.

"It may take a while for consumers to feel the benefits of faster pay growth and falling inflation – our consumer survey research with YouGov shows most households still feel that their financial situation is deteriorating," said Scott Corfe, head of UK macroeconomics at the Centre for Economics and Business Research (CEBR).

"However, we anticipate a turning point over the coming months as consumers start to notice the gains in their wallets. This will lead to an acceleration in consumer spending in 2015, helping the UK economy to achieve a similar rate of growth to last year despite fragility in the eurozone."

Interest rates hike

One of the biggest saving graces for Osborne is that a rise in interest rates by the Bank of England will more than likely come after the election.

Policymakers want to lift the current 0.5% base rate, an all-time-low, sooner rather than later to stave off the threat of a credit bubble as the economy recovers.

When they do begin lifting the rate, a process they say will be gradual, consumers face higher debt repayments and so less disposable cash. Firms will also face higher debt repayments and credit costs. Higher rates could put the brakes on the economy.

Mark Littlewood, director general at the Institute of Economic Affairs thinktank, said the economy "is off the critical list, but not yet in rude health".

"The GDP figures for the last quarter are what we might expect in a normal world in the coming years, given constraints on the supply-side of the economy and an ageing population," he said.

"Whilst growth overall for the past year has been solid, it's easier to recover from a crash – however slowly – than to continue to grow at such a clip over the long term."

So growth will slow naturally anyway over the coming years. But Osborne is hoping that slowdown happens after 7 May, not before.