According to yesterday’s Budget, the Government thinks the UK economy will bounce back strongly early next year – but the International Monetary Fund has been quick to pour cold water on this idea, suggesting that the current recession will be much worse and much longer than the Treasury thinks. Admittedly the IMF’s last set of UK predictions turned out to be a bit dodgy – but it’s hardly the only voice warning that the Chancellor’s forecasts are ludicrously optimistic. Either way, we’re clearly going to be in hock for years to come. And it’s not just St George that’s cross.
The Treasury insists the UK economy will contract by 3.5% this year, before bouncing back to grow 1.25% in 2010, and then (a mildly implausible-sounding) 3.5% in 2011. By contrast, the IMF thinks we’ll slump 4.1% this year and then another 0.4% the year after, before returning to some kind of anaemic growth in 2011. This isn’t just bad in terms of UK plc’s recovery – it also means that it will take the Government far longer than planned to pay back its ballooning debt, since it’ll end up with a smaller tax take and a bigger welfare state next year.
OK, so the IMF did manage to over-state a previous prediction about the future cost of Britain’s banking bailouts by about 50% earlier this week. So their boffins haven’t got an impeccable track record. But nevertheless (and even if you’re not quite sure why the IMF is so insistent on talking down the world economy), it’s hardly the only dissenting voice when it comes to the Treasury’s predictions. Pretty much every commentator seems to think they’re at best optimistic, and at worst disingenuous.
In fact, the Budget has provoked some strong – and generally negative – reactions, which is perhaps not surprising given the eye-watering debt and borrowing figures the Chancellor rushed out (in between his 300,000 mentions of hard-working families, pensioners, and climate change). The Times’ leader article, for instance, called it ‘a great Budget for Switzerland… a declaration of economic and political war on the country’s entrepreneurial class.’ The Independent thought it was ‘one of the most unconvincing and wrong-headed Budgets of the modern era.’ And occasional MT contributor Willem Buiter suggests in the FT that it's time for Gordon Brown to resign, with a government of national unity brought in to forestall a crisis.
Indeed, there must have been mixed feelings within the Conservative Party yesterday. Given the disastrous state of the public finances, and the scathing reaction to the Government’s response (or lack thereof), the next election is surely theirs to lose. But the situation is likely to be so dire if and when they do get into power that it could turn out to be a horribly poisoned chalice. If the Shadow Chancellor somehow manages to balance the books during his stint in Number 11, perhaps we ought to make April 23 George Osborne Day instead.
In today's bulletin:
IMF adds to gloom as Darling fails to slay deficit dragon
No cigar for Grade as ITV boss moves upstairs
Revitalised Debenhams plans expansion as profits surge
Businesses cry foul as Budget comes up short
How to make your management recession-proof