Every day brings more bad news about the economy. This is going to be a long and deep recession and it is going to take years for the public finances to recover. With interest rates moving towards zero, 'quantitative easing' is now on the agenda. In effect, this means printing money but the risk associated with it is inflation when the economy comes out of recession.
An analysis by the Financial Times shows that the economy is deteriorating even faster than the Treasury forecast as recently as two weeks ago. The Treasury also believes that the reintroduction of 17.5 per cent value added tax will hit the economy hard just before the expected date of the general election.
The National Institute is expecting the economy to shrink 1 per cent in the fourth quarter. This alone would push borrowing up by another £2bn to £3bn. The economy is expected to grow by only 0.3 per cent in the first quarter of 2010 in the run up to the general election.