Monday, 23 July 2012
The UK economy: get ready for more action
I don't know if you missed this amidst all the sport (bravo, Bradley Wiggins), but even the International Monetary Fund is becoming increasingly sceptical about the UK's economic policies.Their report last week made absolutely clear that, should there be any more deterioration in the situation, budgetary loosening (i.e. slower cuts) should be implemented.
This does not, by means, add up to a complete vindication of the Labour Party's constant opposition to these budget cuts - for as the IMF notes, if the UK economy is actually beginning to recover (albeit slowly), then there's less need for fiscal action. Some of the unemployment numbers recently might suggest that something is happening out there, though on the other hand this recession has been less awful on this front than previou downturns from the start.
Part of this is all politics, of course. Christine Lagarde (above), the IMF's head, is a centre-right politician in rather more Gaullist mode than her British neo-liberal counterparts. She's praised them in the past, giving them the soundbite they wanted about the need for 'fiscal discipline' back in May. Now she damns them with faint praise - and picks some of the Conservatives' own favoured instruments (quantitative easing - basically printing money - and tax cuts) to get us out of this mess. Along with yet another interest rate cut - what Keynes would have called 'pushing on a string'.
Some of this might actually be helpful to the Chancellor in the end - because it gives him yet more ammunition to cover his retreat, should he want to institute a 'Plan B'.
Meanwhile, the Chancellor is now looking fairly unlikely to hit his target of the national debt falling by 2015/16: something that tells this correspodent, at least, that most of this effort wasn't worth it in the first place. As the IMF report makes clear, 2.5 per cent of GDP has been wiped out by the Government's cuts so far - with more to come. You know what? That makes most of them useless in cutting the key debt-to-GDP ratio, since GDP is smaller than it would otherwise have been.
Remember: we told you here first.