Unfortunately, it might also prove to be equally disappointing, although Dale Spencer, the Bank of England’s chief economist, recently suggested that the economy could return to growth in late 2009 and recover further in 2010.
Of course, Spencer may know something we don’t but he seems to believe that with the base rate down to an eye-watering 0.5% and banking bailout packages in place the recovery will come sooner rather than later.
Believe that if you will, but with the Bank now following in the footsteps of the Weimar Republic with its quantitative easing programme, unemployment ramping up to over two million and the car industry mirroring the problems of the housing market – i.e. the demand’s there but where’s the credit? – come next year we could all be selling the Big Issue and the sequel to Slumdog Millionaire may be filmed on the streets of London.
True, Lord Turner’s review of global banking regulation has given us hope that the issues that brought about the current global crisis – macroeconomic imbalances, some fanciful financial innovations and deficiencies in capital and liquidity regulations – will be addressed at some point.
Even so, it’s worrying that the government is rushing to spend money as if there was no tomorrow while the need to implement reform seems to carry no urgency at all.
Look at the history. Trouble first hove into view with the Northern Rock debacle in the summer of 2007 and a recent National Audit Office report shows that deficiencies in how the authorities were positioned to react to a banking crisis were identified as early as 2005 but nothing was done to address this.
Of course, the rush to spend is Prime Minster Gordon Brown’s way of showing he’s doing something and in this instance he and his buddies have the comfort of knowing that they are busily implementing the comforting Keynesian myth that one can spend one’s way out of a recession.
I say myth because economist John Maynard Keynes came up with the idea during the protectionist period that prevailed between World War I and World War II and it has yet to be blooded in our global economy.
With a small manufacturing base, our dilemma is that the money we pour back into the economy is likely to be spent on goodies made abroad.
For example, take the UK car industry. There’s a plan to give consumers 2,000 to exchange their old bangers for shiny new metal but in this country only 14% of buyers choose domestically produced cars. The scheme would subsidise the jobs of Hans, Jean-Claude and Akira but do sod all to help back home.
It’s no big surprise then that the PM is trying to give the G20 summit an anti-protectionist flavour but by postponing the Budget until later in the month it would seem he’s not too confident about the outcome.
As of now, we know that European leaders will urge G20 members to double the size of the International Monetary Fund’s budget for combating the global recession to $500bn but reject US pressure to inject more money into their own economies.
If that view is shared by the rest of the G20 participants, chancellor Alistair Darling can’t be expected to produce a white rabbit from a top hat on Budget day, otherwise we would be going it alone.