The latest quarterly figures for GDP growth of 0.2 per cent are just good enough in political terms, especially given that special factors knocked off 0.5 per cent: Growth . They are below expectations and disappointing comparatively, but just enough to prevent Ed Balls creating a political firestorm.
Consumer demand is being hit by the squeeze on incomes. But what is not talked about very much is the underlying structural weakness of an economy that is so dependent on consumer demand, something like two-thirds of the total. Debt fuelled 'privatised Keynesianism' as Colin Crouch has called it is not going to return any time soon.
In terms of short term fixes, a cut in VAT has been recommended. That would stimulate consumer demand and have a positive effect on inflation. However, it would also cut revenues and that would undermine the deficit reduction policy which is already encountering plenty of difficulties.
4 comments:
But 0.2 is a really awful figure, especially as the deficit reduction plan was meant to boost economic confidence in the UK. Confidence has collapsed and isn't it time the public were provided more than excuses. Austerity has not worked anywhere in the world, just ask the thousands of Irish who are now moving to Britain. Unemployment, depressed demand,and a decade of lost growth are hardly ways to pay back the deficit.
But 0.2 is a really awful figure, especially as the deficit reduction plan was meant to boost economic confidence in the UK. Confidence has collapsed and isn't it time the public were provided more than excuses. Austerity has not worked anywhere in the world, just ask the thousands of Irish who are now moving to Britain. Unemployment, depressed demand,and a decade of lost growth are hardly ways to pay back the deficit.
It's certainly not a good figure, although one would want to look at the whole year: the third quarter figures may be less distorted. One thing that has been achieved is that British debt is still being bought at low interest rates, although it still cost £44bn last year. The country has been living beyond its means in terms of public and private consumption and any correction is bound to be painful.
"Anonymous" is, I suggest, repeating the so-called 'False Economy' (TUC-backed) argument: that the country can simply grow its way out of the deficit. But this seems to be palpably inaccurate, given the failure of Britain's wide range of "stimulus" measures. The only stimulus not yet attempted is a cut to the top rate of income tax to boost consumer demand - and this would prove impossible to implement because there would be too much opposition from those who are lower paid. There is too much wishful thinking in this country and it's already half killed us!?
Unfortunately, it really does look as though the country is starting to die in an economic sense. The issue is that, as the original post alludes to, the economy can't be debt-driven any longer; but the debt drivers have to be removed more quickly than manufacturing can recover to substitute for this. Contrary to what Anonymous says, I think things will be better in Ireland, which is already starting its rebuilding phase. Fianna Fail has been annihilated by the electorate there, and replaced with a Fine Gael-Labour coalition which will provide very stable government and enjoys real legitimacy. So Enda Kenny can within certain limits put in place the policies he wants and start to - for example - get bright young people back into the country. I would seriously question whether Britain's position is better.
The UK is a victim of its own British Complaceny Disease. Economically I think the game is already over. There have to be public sector cuts and redundancies, yet there is no reason to assume that people can transfer in large numbers to (allegedly admirable and efficiently organised but often a mess in practice) private sector work. Thus, the government either stops paying benefits to those affected - effectively brining about civil disobedience by declaring war on its own population - or the benefits bill rises and its own deficit reduction plan becomes unachievable. An unachievable plan presumably risks a sterling crisis, at least at some point, which would further worsen unemployment. I feel that this is where the danger lies, at the same time as the debt-based system implodes and inflation and the base rate climb. The Lib-Con Coalition has staked too much on an over-optimistic "private sector-led recovery"; I don't see much evidence that this is feasible so the outlook is civil disobedience (totally absent in Ireland I would add) and semi-permanent recession.
Nevertheless I think Brown and New Labour are more culpable than the Coalition, though Cameron and the Tories have been complicit in the failure by serving up a well below average, inept Tory Opposition prior to 2010.
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