More gloom on the economy today: The IMF have downgraded UK growth by 0.6 per cent to 1.1 per cent in 2011, and from 2.3 per cent to 1.6 per cent for 2012.
It is almost as if Vince Cable was preparing his fellow sandal-wearing companions for the bleak news from the IMF today when saying there was a risk of a downward spiral due to low demand at his party’s conference. Unfortunately, however, anyone hoping the Lib Dems will see sense that the cuts are too far, too fast will be left sorely disappointed.
Despite growth being downgraded 0.6 per cent by the IMF to 1.1 per cent in 2011, and from 2.3 per cent to 1.6 per cent for 2012, rest assured there will be “no deviation on deficit reduction” for the smaller coalition partner.
Instead, the Tory-led government will be relying on the automatic stabilisers in our economy. In other words, with economic policy failing there is still the safeguard that people losing their jobs will receive unemployment benefits they can spend on goods and services to boost the economy – how reassuring.
The Conservatives resurfaced after 13 years in opposition mainly because of their argument that public spending needs to be drastically and relentlessly cut in order to avoid any further economic malaise.
It is therefore perhaps unsurprising Osborne is now practically begging the Bank of England to begin printing money instead of stepping in as a responsible chancellor and actively promoting growth and jobs.
Contrary to Osborne’s dribble of a Plan B forcing us into a Greek-like catastrophe, the Lib Dems should begin facing the truth instead of repeating the same old lines and refusing to admit the obvious.
First of all, the UK economy is much bigger, stronger and more resistant than that of Greece and is therefore in a much better position to repay its debts.
Secondly, we are not part of a monetary union and therefore have the benefits of a depreciating currency and low interest rates in times of need. For example, despite the problems in the EU’s periphery economies, the ECB decided twice since April this year that it had to increase interest rates because of the overall inflation rate throughout the Union. In the UK, interest rates have been kept at 0.5 per cent for 30 months.
Thirdly, the reason for the bond prices in the UK being at its lowest point since the Second World War is not because it is perceived as a safe haven. Rather, it is simply due to the growth prospects in this country being so low that investors are speculating that low interest rates will have to be maintained for longer than previously expected.
Lastly, the average bond maturity (when the Government needs to repay its debt) is exceptionally longer in the UK, standing at about 14 years, than any other country in the EU. This means the country’s funding will only have a gradual effect on the costs of servicing UK debt and markedly reduces the amount of bonds being sold to investors in any given year.
Christine Largarde, director of the IMF, stated previously that the Government needs to think again about its deficit reduction plan:
“…if it looks like the economy is headed for a prolonged period of weak growth and high unemployment.”
Echoing her calls, in the midst of dire unemployment figures and the continuous downgrading of growth, the Tory-led Government needs to come up with a plan that involves less cuts and more growth – in other words, a Plan B.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.