Whatever happened to 'no more boom and bust'?
Sep 25 2008 By Neville Boyd Maunsell
First, congratulations to all those tactful delegates at the Labour conference who managed to get through without mentioning that our Prime Minister was the Chancellor who gloried in the claim that he had abolished “boom and bust”.
Worse, he embarked on an unprecedented public spending splurge on the assumption that it was really so.
Gordon Brown actually won plaudits for admitting that he didn’t get the 10p tax affair quite right, but his hubristic mismanagement of Britain’s economy passed unmentioned. If there was a plot to topple this Prime Minister it was the most mealy-mouthed plot in history.
Nobody in the once-socialist Labour Party got round to congratulating the Bush administration on its plan to nationalise the American financial system, nor even call for more Northern Rocks over here.
Chancellor Darling took another opportunity to talk down the British economy, though this time leaving out the bit about it being the worst crisis for 60 years. He rightly drew attention to the black hole developing in the Government’s own finances – without blaming or naming the individual responsible.
Shrunken tax receipts from a stricken City shorn of most of its seven-digit bonuses will be bad news for the Chancellor and for the rest of us who will one day be taxed to pay back his borrowings.
But this financial turmoil need not in itself mean that the real economy goes into a deep, prolonged recession. The credit crunch, a stagnant housing market and stickier demand for British exports in a slower world economy may well mean that we are already into a spell of “negative growth”. If that continues for two quarters running it will meet the technical definition of a recession – but nothing like Darling’s doomsday.
Andrew Sentance, a member of the Bank of England’s monetary policy committee, stressed last night that the present prospect is nothing like the severe recessions of the mid-1970s, early 1980s and early 1990s.
“In these episodes,” he said, “economic activity fell sharply for one or two years. In my view, the current outlook is for a much milder period of weak activity on this occasion.”
Similarly, the CBI is standing by its forecast of a “brief, shallow” recession, made before the collapse of Lehman Brothers set off the latest bout of financial turbulence. It is still calling on the Bank to cut interest rates by a half-point in November, which may not be on Mr Sentance’s agenda for some while.
The issue is whether he and his interest-setting colleagues at the Bank accept that inflation has turned down enough for pay bargainers – and the people in companies who set prices – to accept that the worst is past.
Asda’s retail director, Andy Clarke, said that food inflation has peaked already. But there are still shocking winter fuel bills in the pipeline. They will start popping through the door in January, just as people are coming to terms with what they have spent over Christmas.
By then all sorts of things could have happened. The surviving banks may even be trusting each other and lending enough mortgages to get the housing market ticking over.
