“I don’t believe in lecturing the British people,” George Osborne told the Today programme this morning, adding that they are “perfectly capable of making their own decisions”. A pity that he didn’t have a word with David Cameron before the Prime Minister’s politically insensitive and economically illiterate call for people to pay off their credit cards.
Elsewhere, confronted by the fact that he once described quantitative easing [QE] as “the last resort of desperate governments when all other policies have failed”, Osborne just about managed to wriggle out of this political snare. The Chancellor pointed to the fact that in 2008 he declared: “the path of radical monetary action and responsible fiscal policy – that is the right route out of a recession”.
The difference between now and 2009, when the Bank of England began QE, he argued, was that the government had a “credible fiscal policy”, it was not attempting to “inflate” away its debts. But the fact remains that monetary activism alone will not be enough. Without a slower pace of spending cuts and tax rises, growth will continue to be depressed. Osborne insists that the government cannot borrow a billion more to stimulate the economy but at the Budget he announced £44.5bn of extra borrowing due to weaker-than-expected growth.
As for inflation [which currently stands at 4.5 per cent], the primary concern of many Conservatives, Osborne largely dismissed this as a temporary phenomenon caused by the “high oil price” and and the devaluation of sterling. But, tellingly, he omitted to mention the inflationary effect of his 2.5 per cent VAT rise.
In the meantime, it is becoming increasingly clear that the £75bn of QE announced by the Bank yesterday (adding to the existing £200bn programme) could be just the beginning. Michael Saunders, UK economist at Citi, tells the Telegraph:
“With the recent large deterioration in the economic outlook, the MPC will probably have to do QE on a very big scale. We expect the cumulative total will eventually reach £500bn or so. It may go even higher than that.”