It wasn't supposed to be like this


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Negative growth and the danger of a double dip; debt rising faster and the deficit falling slower than forecast in the Treasury plan laid out when Alistair Darling was chancellor; and the hoped for re-balancing of the UK economy on hold as the manufacturing sector shrinks instead of grows.

The prime minister will, no doubt, point to troubles imported from the eurozone. To which Labour replies that it is the shrinkage of domestic demand that caused the slowing of growth until the end of last year.

The debate about the recent past feels wearisomely familiar. Not so, though, that about the future.

The IMF's chief economist Olivier Blanchard has called on the UK to consider slowing the speed of cuts in the short term to avoid strangling the recovery:

Blanchard: If the economy is doing worse, let the automatic stabilisers work for example, which is the case in the UK, which is partly the case in Germany as well. You can even go further than that, if growth is really dismal then you may decide that you're going to go a bit more slowly about the discretionary part of the budget and for the UK there's some indication that this happened with respect to the revision in potential output, yes to the extent that these countries are not under the gun from the markets, have plausible medium term plans, they can slow down and it would help.

BBC: So we don't need to cut as deep as we were?

Blanchard: You have some room to do something if needed, yes if growth were to be even worse than we have forecast.

BBC: So more flexibility than we thought?

Blanchard: Yes you have, again, there's another issue which is if you have announced the plan and you deviate from the plan you may lose credibility. So given that the UK has announced the plan moving from it is a bit more difficult than it might be for another country.

The organisation's boss, Christine Lagarde, is more diplomatic, perhaps because her demand for more resources for the Fund relies on maintaining good relations with the chancellor and other Treasury ministers.

Inside government there will now be much soul-searching about how to stimulate growth. The much-vaunted package of infrastructure investment, government-backed business loans and a stimulus to the housing market will be examined to see if they are actually delivering.

There is one other intriguing possibility - tax cuts. The coalition is committed to steadily increasing income tax allowances to take poorer people out of tax altogether. At a time when ministers want to prove that they are committed to fairness, an accelerated increase might look rather tempting.

They would also be following the advice of Gus - now Lord - O'Donnell, the recently departed Cabinet Secretary, who included tax cuts on his list of things to do if the economy flatlined. The other things he recommended have, by the way, already been announced.

Nick Robinson Article written by Nick Robinson Nick Robinson Political editor

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  • rate this

    Comment number 261.


    So, you reckon you could find someone cheaper eh? Why dont you try one of your Occupy mates, who'se "finance team" did a bunk this week with the keys to the safe? Hester has a fixed term contract. If RBS's share price is above where Brown bought it and it is deleveraged, he gets the bonus. If it isnt, he doesnt. If you get the 45Bn back of taxpayer value, 4m will seem like chicken feed.

  • rate this

    Comment number 260.


    Kinda figured you'd come bounding in when you saw your favourite useful idiot/bulletcatching cannon fodder poster comes under the first bit of withering fire. With an equally idiotic contribution. Can you answer any of the points that I put to lefty that he couldnt answer? Er, no mate, you cant. Suggest you might wind your neck in until you can.

  • rate this

    Comment number 259.

    257 - I'll keep in nice and simple.

    Mr Hamilton is a high earning racing driver living in the UK. He pays tax at 40%. "Musn't grumble", he says. Along comes Lardy Lefty Labour politician and puts up rates to 50%. "Bugger this for a larf", says Mr Hamilton and moves to Switzerland.

    See how 50% of nothing is less than 40% of something?

    Try 83% and it won't just be Mr Hamilton.

  • rate this

    Comment number 258.

    State sector or not, Hester will consider a million (ish) bonus to be rather modest for running a bank.

    And he'll be right. Others in his position will get far more. In fact plenty in more junior positions (in other banks) will get far more.

    Illustrating once again (for the dullards and slow-coaches who may still need it) the disconnect between merit and remuneration in this risible sector.

  • rate this

    Comment number 257.

    AndyC555 256
    Now don't get cross Andy but re your post yesterday, I did try drawing houses with my crayon. First I drew 83% of a house and the I drew 40 % of same house. The, just to please you I squinted very very hard at the 40% one but I just couldn't make it look bigger that the 83% one. I want it to look bigger, really, but it doesn't work. What's the secret Andy? What aren't you telling us?


Comments 5 of 261



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