Opinions on the UK economy this week

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In the past few weeks a lot of opinions and perspectives on the state of Britain’s economy have been revealed. See the important bits from the important people/institutions:

FSA Chief Lord Turner:

FSA Chief Lord Turner has called for new ideas to kickstart the economy. Turner warned that quantitative easing, the electronic printing of money used to pump £375bn into the economy so far, might lose its usefulness.

“We need to be ready if these measures prove insufficient to consider further policy innovations and further integration towards different aspects of policy, to overcome the powerful economic headwinds created by deleveraging across the developed world economies,” Turner said. He agreed with the chancellor, George Osborne, who has warned about creating “the stability of the graveyard” when reforming banks.

Deputy Governor of the Bank of England:

Paul Tucker has said the monetary policy committee, which sets interest rates, wanted to make credit cheaper, but was wary of adding to the £375bn of quantitative easing (QE) in case it triggers a rise in inflation.

“I think Funding for Lending can help. I was very keen that it be introduced. There are no silver bullets. People rightly point out that there may be weak demand for credit. Of course that’s an element. But the Bank should do what we can to alleviate problems in credit supply, consistent with staying within our remit as a central bank.”

**The Funding for Lending scheme is designed to stimulate the economy by making cheaper loans available to firms and individuals, 5 of the UK’s six biggest lenders have signed up**

IMF

Earlier this week the IMF predicted that Britain has relapsed into recession and should “smooth its planning adjustment over 2013 and beyond”.

The IMF has cut its growth forecasts for Britain and warned in its annual fiscal monitor on Tuesday that Britain will miss deficit reduction targets this year.

The government’s target of reducing the cyclically adjusted annual deficit will be missed after the IMF estimated it will be reduced by 1.25% and 1.5% this year and next.

The IMF expects the UK economy to shrink by 0.4% this year.This compares with its forecast of 0.2% growth in July. Next year, the UK economy should grow by 1.1%, the IMF said, down from its previous forecast of 1.4%.

The IMF said it was difficult for the UK to reduce its annual deficit when tax receipts had declined in response to low growth, but it should continue to make strides to bring spending and income into balance.

Ed Balls

“Twelve months ago, the IMF forecast growth of 1.6% in 2012 and said a plan B would be needed if growth were to be lower than expected. A year on, with Britain in a double-dip recession and growth forecast to be -0.4%, there can be no question that a change of course is urgently needed.

“The IMF has rightly warned that the government’s policies risk causing permanent damage to our economy and growth is needed to get the deficit down. And, like Labour, they’ve said a Plan B should include temporary tax cuts and additional infrastructure investment. It’s time David Cameron and George Osborne finally listened and took action to kickstart our economy before even more damage is done.”

Following Mervyn Kings talk at LSE

King has urged the government to impose the stricter cap proposed by Vickers, instead of the weaker limit chosen by George Osborne after lobbying from the financial sector

“The case for price stability is as strong today as it was 20 years ago,” he said, adding that to abandon inflation targeting would be to “throw out the baby with the bathwater”. However, King argued that there might be some situations where it would be right for policymakers to “aim off” the inflation target in order to prevent a jarring financial or economic crisis.

Simon Jenkins, journalist for the Guardian

Those who warned three years ago that the risk of double-dip recession was so high as to require a plan B were right. The Treasury, the Bank of England and the IMF were wrong. The fact that the Treasury has had to propose six ineffective business lending packages in a row, and the Bank has had to pretend to pump £375bn “into the economy” is proof of that failure. I do not believe for a minute that George Osborne and his advisers, had they correctly predicted the recession, would be following the present policy. At least the IMF is now admitting its mistake.

Government and Bank economists are continuing to allow politicians to cop out of reflating demand for fear of a U-turn. Economists are like physicians in the days when they believed in leeches. They take no responsibility for gross errors that would get doctors struck off, and even transport officials suspended.

General Secretary of the Public and Commercial Services Union

What this government is doing to the economy, to public services and to people on benefits or in care is a disgrace. They told us in 2010 that all this pain was to tackle an unavoidable crisis. Now the IMF is lining up with us to say that austerity is becoming counter-productive. And it’s obvious: if you cut people’s pay, cut benefits, and cut the investment that creates jobs, you won’t get growth – and without that you can’t close the deficit.

David Cameron calls this the “aspiration nation”. It is. Where once we had rights to housing, healthcare, education, welfare, decent pay and pensions, now we can only aspire to them.

With another two and a half years before the next election, a new coalition is forming: the dispossessed – people who have lost their job, their local library, the home care for an elderly relative, the chance to study at college or university.

Later this month, the union will be marching in London ‘for their jobs, pensions and pay’.

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