Recession

Ten days on and Danny Finkelstein still seems to be upset with me for my Keith Joseph lecture, where I said the Tories risked being ensnared by Brown’s ‘investment v cuts’ rhetoric. For reasons that I’m still not quite sure of, Danny hates the idea of cuts. He may have (and I hope he didn’t) take it personally when I said it was precisely this attitude amongst the Conservatives that created the climate for the fiscal crisis Britain is now facing. Over the last decade, Brown increased spending by 16 percent of GDP (see graph below)- not only faster than any developed country, but faster than any major country of

Faisal Islam, Channel 4’s economic correspondent,  is one of the journalists who best understands what the Bank of England’s institutional view is. So it is interesting to see him writing this today: “I’m convinced that at Threadneedle Street, they were shocked by the limpness of Britain’s exit from recession. They have been running their big computer model in the past weeks. When it reveals new economic forecasts next Wednesday, we are likely to see a marked downgrade to Britain’s economic prospects.” Politically this could have an impact as Labour’s, to put it charitably, extremely optimistic growth forecasts are what allow it to claim that it will cut the deficit in

Expect Labour to make much of today’s employment figures, which show that unemployment fell by 7,000 in the three months to last November.  Already, Yvette Cooper has claimed it as a success for “government investment”.  While Gordon Brown will surely repeat that message in PMQs. But is it really testament to government action?  Or is it a result of a naturally improving economy (which, let’s not forget, is taking longer in the UK than most other developed nations)?  Well, a study commissioned by the Spectator from Oxford Economics found that Brown’s “investment” would “save” around 35,000 jobs in 2009 – but then destroy considerably more jobs from this year on. 

Alistair Darling’s got an interview in today’s FT, and you know the story by now.  Yep, the government thinks that borrowing needs to come down drastically; extra growth would go towards cutting the structural deficit; there’ll be the “toughest settlement” on public spending for twenty years, only it shouldn’t be introduced too quickly; those bankers aren’t quite as evil as previously suggested; and so on and so on.  As we’ve said before, it’s certainly an improvement on that fatuous investment-vs-cuts line.  But you’ve got to wonder whether the public will find it credible, in view of what Brown & Co. have said, and done, in the past. Reading the complete

The Tories have said plenty to dismay me in the last few weeks, so I was delighted to pick up the FT today to see George Osborne talking sense – and boldness. Given that we have to increase taxes, it’s an obvious one to raise. The “too big to fail” principle means that the state now provides de facto insurance to banks – so it’s reasonable that they pay for that insurance. The whole tone of Osborne’s interview is reassuring, especially as he indictates he is studing the aggressive Swedish reponse to the fiscal crisis. He indicates Tories are looking at plugging the deficit with 80 percent cuts and 20percent

Oops! Britain’s inflation is heading back to 4 per cent territory ­ as you’d expect with the Bank of England printing money and using the debt to finance government spending. If you create more money, you reduce the value of the money. Citi has done another brilliant research note, which it is putting online, laying out the implications. The punters are facing pay freezes, or settlements below 2 per cent. The cost of living is soaring. Result: misery. Here are the two graphs from Citi that spell it out. First, inflation (much affected by the VAT hike ­ in the same way that it was artificially reduced by the VAT

Oh, Darling, what hast thou done?  There are few more pertinent, or more damning, examples of what the government’s soak-the-rich policies could mean for the country than the news that JP Morgan is having second thoughts about developing a £1.5 billion European HQ in Canary Wharf.  Of course, the bank may still go ahead with it.  But just imagine if they don’t: the work lost for construction workers and a thousand other contractors; the tax revenues lost for the public finances.  The damage won’t just – or even mostly – be to the financial sector. Thing is, I imagine that Number Ten will be fairly happy with the story.  As

There are some pretty cheeky claims in today’s Pre-Budget Report. One is that “Cyclically-adjusted borrowing is lower than at Budget across the medium-term forecast.” (page 171). That makes it sound like it’s all under got a bit better since the Budget. But in fact the “cyclically adjusted” improvement is entirely because of a redefinition of the cycle – not because of any actual reduction in the deficit.  For example, the PBR forecasts the deficit for 2013/4 as 5.5 percent of GDP – exactly the same as that in the 2009 Budget.   Another claim is that “The annual pace of consolidation set out in this Pre-Budget report is faster than

Moody’s AAA sovereign monitor was published today, and whilst the UK’s AAA status remains ‘resilient’ the situation is far from rosy. The report states: ‘The UK economy entered the crisis in a vulnerable position, owing to the (overly) large size of its banking sector and the high level of household indebtedness. Both continue to weigh on economic performance. Net bank lending to the UK business sector has continued to contract through Q3 2009, and repairs to household balance sheets (i.e. the rising savings ratio) may weigh on demand for some time to come. The depth of the crisis has been mirrored by the ongoing deterioration of public finances (with gross