So that was what it was all about? All that well orchestrated hype, all those well honed briefings concerning the end of the recession, brought forth a mouse of a recovery, the smallest margin possible. Let’s hope the figures are not revised downwards. We know the economy struggled again in January, with a couple of weeks of snow bringing much of the country to a halt. The government must be hoping the next couple of months pick up speed, so the first quarter figures this year do not show an overall reduction again.
The bigger picture is alarming. The economy has fallen 6% from its peak, taking it back to levels of output in 2005. So this long Labour led Parliament has produced a standstill Britain, a UK going nowehere. To bring about this worst ever economic performance for a post war Parliament, the government has doubled the national debt and printed more money than any of its predecessors. Then they want us to say “Thank you” for spending all this money we have not earned, claiming it has made us stronger.
The Conservatives have rightly argued that if we do not start cutting the deficit now interest rates will be driven higher by the markets, and more damage done to the halting recovery of the private sector. They also need to point out that we have a two tier interest rate structure in the UK. Interest rates for small businesses and much of the private sector are already too high. It’s only the banks and the government that enjoy rates related to the notional 0.5% the MPC solemnly sets each month, and then only for very short term borrowing.
As Quantitative easing ends, so you would expect the government’s borrowing rate to rise further. Then the MPC has a simple question to answer. Does it wish to carry on with the fiction that 0.5% is the short term interest rate in the economy, so it can endow banks with a bigger windfall, or does it want to get its rate back in charge of market rates for the rest of the economy, in which case it has be higher.
When the Opposition says we need to cut the deficit to keep or get interest rates down, they are right. There remains the gross distortion of our current interest rate structure to sort out. It has been created by a government that wanted to offer sweetheart deals to the public sector and the banks at the expense of everyone else. They are running out of road for this policy, as the markets will extract a higher price for their excesses.