Austerity is Not to Blame For the UK's Disappointing Growth Forecasts

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. 

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    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

    How hard is it to say England needs to cut, actual cuts not slowing spending, to improve its economy?

    Note to Matthew Feeney google "Rogoff and Reinhart"....otherwise you are just pissing in the wind.

  • ||

    Unfortunately, the intellectual dishonesty of using 'austerity' to mean a braked increase in spending seems to be quite successful, politically, so I don't see it going away any time soon.

  • ||

    so I don't see it going away any time soon.

    Labor is going to get a new election and they will win...and they will say austerity did not work because it was not really austerity.

    As a result Labor will spend and spend and spend like drunk Keynesian during a depression.

    What will happen is become fake austerity was shown to not work real austerity will be blamed for it and thus become a political impossibility....at least until the whole English Economy collapses under debt and inflation...then they will be forced to cut.

  • ||

    Labor is going to get a new election and they will win...and they will say austerity did not work because it was not really austerity.

    I wrote that wrong:

    Labor is going to get a new election and they will win...and they will say austerity did not work. Of course it did not work because it was not really austerity....which they will not say.

  • ||

    Which is likely going to be the problem in 2016 if Romney is elected. See, we tried that free-market austerity stuff and it didn't help.

  • Cytotoxic||

    Free-markety stuff gets the blame regardless. Reality is racist remember.

  • Insert Clever Name Here||

    Yep. You got that right.

    :wq!

  • ||

    This is one of the biggest reasons I don't see any value in a Romney win.

    Romney will not do anything to reform our current fiscal nightmare (or at least not anything that will be effective), but no matter what he does his efforts will be painted as the "free market solution" and his failures will tarnish the brand.

    Thus my ideal 2012 results are: Very narrow Obama win, with a split House-Senate...51/49 Senate would be ideal. These days gridlock is the best we can hope for.

  • ||

    Not to mention the possibility of Rand Paul in 2016.

  • Insert Clever Name Here||

    Real gridlock presupposes that a President Obama would not act extra-constitutionally via regulations, agencies and czars.

    You might want to !Bing "workfare requirements" and "dream act" to see how that will turn out.

    Maybe a narrow Romney win with a divided House/Senate would ensure some gridlock with a hint of slowing-rate-of-growth in the budget...

    :wq!

  • ||

    Which is likely going to be the problem in 2016 if Romney is elected.

    I was talking about England...they can call an election at any time and with the Tories weak I am pretty sure Labor will force one sooner rather then later.

  • Loki||

    their posturing is nothing more than self-satisfying intellectual dishonesty

    Sounds familar.

  • SengaMooo||

    This jsut makes all kinds of sense dude. WOw.

    www.Gettin-Private.tk

  • SengaMooo||

    This makes a lot of sense dude. WOw.

    www.Gettin-Private.tk

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement