At first glance the IMF and Institute of Fiscal Studies reports on the state and prospects for the British economy are very depressing. The FT leads the chorus
Britain is facing the deepest recession of any big industrialised economy, the International Monetary Fund signalled on Wednesday as it said that the UK economy would shrink 2.8 per cent this year…The IMF forecast for the UK is 1.5 percentage points below its previous estimate.
But let’s be counter-intuitive. Im going truffling for signs of green shoots. For instance, the following negative message is not the only way to express the thought.
The IMF projects that Britain will grow by only 0.2 per cent in 2010.With the government obliged to call a general election by the spring of 2010, ministers have been hoping that the economy will bounce back from the middle of this year to record growth of around 1.75% next year. The IMF said it expected the UK to register virtually no growth at all in 2010, with GDP expanding by 0.2%.
You could put it more positively and say that although the recession will be deeper than expected, it wont last for ever. Growth will start in 2010. And theres more encouraging news on battered old sterling from the BBC’s Robert Peston!.
Here’s some mildly encouraging news however. I interviewed George Soros, the hedge-fund legend, this afternoon – and he thinks most of the bad stuff about the UK is in the price. Or, as he put it, he thinks that sterling may have fallen enough, for now (which is something of a contrast with that mega-bear of the UK, Jim Rogers, who used to work with Soros).
The separate report by the Institute of Fiscal Studies claimed that the victor of the next election would have to put up taxes or cut spending by £20bn and saddle us with higher than 07-08 levels of public debt for 20 years .Aaaghhh!!!
BBC Economics editor Stephanie Flanders, back from months of maternity leave which meant she missed the onset on the crisis ( lucky woman?) has good news and bad news about the IFS analysis.
Overall, they think the government is being around £20bn too optimistic in its forecasts for borrowing between now and 2013. That’s not nothing. But, as the IFS admits, it’s well within the margin of error for forecasts like these. The average forecasting error for borrowing one year in advance is around £15bn; for forecasting three years ahead it is £30bn. The Green Budget’s own forecasts for borrowing in 2007-8 were actually further off than the government’s (oddly enough, both were too pessimistic).
And on that staggering level of public debt.
Finally, the IFS brings the news that we taxpayers will be paying for the credit crunch for a generation. It reckons that debt will not fall back to the government’s old ceiling of 40% of GDP until 2031… The good news is that the Treasury isn’t expecting that debt to cost us very much. If interest rates stay low, debt servicing as a share of GDP will be lower than in the mid-90s or early 80s. The bad news is that if interest rates go back up to more normal levels, debt will once again be on an ultimately explosive path.
Sadly, I have to end with gloom about the course of public spending. At least were inured to that by now arent we?
Thanks to the recession, spending will soar this year and next, but between 2010 and 2015 the budget is going to tighten by 2.6% of GDP. Of that, only 0.25% of GDP is accounted for by higher taxes.