The Bank of England has downgraded its growth forecast for the British economy, predicting that there will be zero growth in 2012. This is a lower figure than the 0.8 percent growth predicted only months ago. Governor of the Bank of England Sir Mervyn King said:
Unlike the Olympians who have thrilled us over the past fortnight, our economy has not yet reached full fitness.
Trying to exculpate himself Sir Mervyn wasted no time in putting Britain’s disappointing economic performance in a wider context:
The recession in the euro area is damaging demand for our exports. A black cloud of uncertainty is hanging over investment and the weakening euro is a further obstacle to the adjustment we need to make in our net trade position.
Labour wasted no time in criticizing the news, with Shadow Chief Secretary of the Treasury Rachel Reeves MP asking when David Cameron’s coalition government was going to consider a “Plan B”.
Since the 2010 general election Labour has criticized the coalition government's economic policies, with Labour Leader Ed Miliband repeating over and over again that the government is cutting “too far, too fast”.
The myth of British austerity has been repeated on both sides of the Atlantic. However, if the British government is practicing austerity it is hard to see. Whatever cuts there might be are thanks only to the inflation caused by the Bank of England’s fiscal activism. According to Vicki Redwood of Capital Economics this sort of action is something we can look forward to seeing again in the future:
The door is clearly open to more stimulus and we still expect both more quantitative easing and a further interest rate cut in November.
What the British government has neglected to attend to is the need for supply side reform. Burdensome regulations prohibit economic growth even when a government decides to cut spending.
Over at the Institute of Economic Affairs, the granddaddy of British free market think tanks (and my old stomping ground), Ruth Porter responded to today’s news by speaking of the need for some actual spending cuts and regulatory reform:
It’s hardly surprising the economy is not recovering when the government has failed to reduce public spending significantly. Focusing on increasing private sector investment and productivity is the key. Heavy regulation and high taxes will inevitably put businesses off investing.
Maybe when the British government actually implements spending cuts and reduces regulation and the Bank of England stops printing money Labour will have a point. Until then their posturing is nothing more than self-satisfying intellectual dishonesty.