Yesterday saw a government fight back on the economy savaged by events.
The pound dropped to a new all time low against the Euro – a Euro is now worth more than 81p, 14% more than at launch.
The pound dropped again against the dollar. It has fallen from $2 to $1.77 in les than a month, making all items priced in dollars more than 10% dearer.
The latest report on the jobs market said there had been a sharp contraction in jobs on offer.
Many people said that the government’s encouragement to first time buyers to buy properties when house prices are still falling at around 1% a month was bad idea
The OECD came out with a surprising forecast that only the UK of the major economies would plunge into recession in the second half of 2008.
The fall in the pound and the changes in the job market matter more than the forecasts and statements. The devaluation has made us all a lot worse off. It’s time to think of cancelling the holiday in the USA if you were planning one. It means dearer oil and food. It means a bigger squeeze on our spending power generally.Now we are imprting inflation, it will put the Bank off action to cut interest rates quickly enough.
The fall in jobs is not all bad news. Wages are under reasonable control, as I have been forecasting. There is not going to be a wage inflation against such a gloomy jobs background. The fall in jobs also implies companies are taking action to avoid financial disaster. It means more companies will survive the downturn.
Even the government’s housing package was mercifully small, and included some spending that was already in budgets. Is that the first sign that the government realises there are limits to how much it can borrow?
Unfortunately the government has already committed itself to unrealistically high spending plans, and will not come clean on how much worse the deficit now is, thanks to sharp slowdown. It remains vulnerable to the mauling given it by the OECD forecasts, because its own forecasts are so obviously wrong. No-one believes the government’s figures. If they wish to reassert any kind of authority they should re forecast now.
And whilst they are about it why not recall Parliament to discuss the various rescue packages? I am sitting in my office this morning, but as always in September the place is a building site. Whilst most MPs are away from the place, they just carry on spending!