Recession bottoming out, as debate over cuts hots up

Has growth has already started or is the recession just bottoming out? That’s the state of the debate on recession. An FT poll of City economists suggests that more than half think that the economy has returned to growth. The CBI sounds a cautionary note, but: In a hopeful sign, the CBI cut its forecast for unemployment to a peak of 3m from a previous prediction that it could hit 3.2m. Ian McCafferty, its chief economic adviser. said the degree to which workers seemed to be prepared to accept shorter working hours and pay freezes and cuts had helped lessen the number of redundancies.

Stand by for fresh worries on inflation due to quantitative easing. Meanwhile, the choice between the two main UK political parties over public spending is becoming just a bit clearer, after the row sparked by Conservative spokesman Andrew Lansley’s blunt admission that maintaining NHS spending levels would entail 10% cuts elsewhere. The shadow Chancellor George Osborne and the Chancellor who didn’t make it in the reshuffle, Ed Balls, have been slugging it out in rival articles in the Times and Guardian. Writing in the Times, Osborne calls for honesty in admitting that cuts are necessary: a party that does otherwise condemns itself to ridicule and irrelevance. Wouldn’t a good place to start be to tell the public the truth instead of treating them like fools? Osborne however ducks the debate on what Lansley’s admission would mean in practice. If they win power next year, the Conservatives are expected to bring in an emergency budget straight away, whereas Labour would defer the biggest cuts to after 2011.

Balls says an example of how Conservative cuts would hit society is their refusal to match Labour’s latest programme of job training for higher than expected numbers of the young.

The reason they cannot match our investment is because the Tories are committed to cutting spending – not just in the future, but right now in the middle of a recession. Instead of investing so we can recover more quickly and more strongly, the Tories are ­ideologically wedded to cutting spending to fund tax cuts for the few. Those who claim it is old-fashioned to talk about “dividing lines” in politics are basically saying all mainstream parties are the same. That suits the Tory desire to get elected by stealth, but it’s a dangerous nonsense.

The Sunday Times’ David Smith boils down the differences between the two parties like this (tucked away in a box after an article about Mandelson)

So, amid all the smoke and mirrors, there may be a genuine tax-and-spend battle ahead. Both parties will cut spending, but the Tories will seek bigger reductions, partly through efficiency savings. Labour might deliver slightly smaller spending cuts but will, instead, have to put taxes up more. It is a choice, although not necessarily an appealing one.

  • Mack

    It’ too early to tell if the global recession is over, Brian.

    I’m skeptical that problems this big can be solved so quickly. Households are still deeply in debt (at least in the USA and Ireland), I can’t see how we can easily return to debt based consumerism – certainly not so quickly. The Balitc Dry Index, a measurement of international shipping costs (and thus international trade) rebounded after totally collapsing somewhat last year. It’s now heading south again. Stock markets are also falling again today, the recent recovery may yet prove a bear market rally over the coming months.

  • Mack
  • danielmoran

    Brian… If, as suggested 2010 will see the UK recovery, along with a general eurozone recovery, in theory that should mean the same for the republic’s economy since the taxation rules that nursed the celtic tiger are still there. That will surely come, and it will be interesting to get reaction from unionist politician’s who were indulging in schadenfreude at the state’s loss of status when the recession started to bite.
    Since, as pointed out by brian feeney and others, the northern ireland economy is itself a contradiction in terms, the situation can’t revive in the same way. the subvention is, by nature giving a flat effect.