His admission that the government had not realised how bad the credit crunch’s effects would be on the economy was unacceptable. He also admitted that we face the worst economic circumstances for 60 years. What is particularly galling is that many mortgage experts were predicting dire repercussions from the crunch as long ago as October 2007.
I’ve no doubt Prime Minister Gordon Brown had a similar reaction to me when he read the papers because a few hours later Darling was on TV desperately trying to backtrack on his comments. How much longer can we put up with Laurel and Hardy running the country?
The other significant news is that there are signs the US may avoid a recession. Its Q2 growth figures were significantly better than expected and annualised growth hit 3.3% instead of the predicted 2.7%.
Compare that with UK growth forecasts, which predict flat to negative growth over the next two quarters. Given that the US was at the epicentre of the crunch, you have to ask how it managed that. The answer is simple – our central bank has been the least responsive of any in the world to the credit crunch. For example, the US Federal Reserve has aggressively cut interest rates to keep mortgage repayments as low as possible so that consumers would not panic and tighten their purse strings too much.
Compare the Fed with the Bank of England, which has done too little too late. The UK is now gripped by a crisis of confidence. Consumers are slashing spending, leading to job losses which will inevitably lead to higher repossessions and further house price reductions.
The BoE, free from political pressure, is only interested in one thing and that’s keeping inflation below 2%. The only voice of reason on the Monetary Policy Committee is David Blanchflower, who has called for rate cuts in the past seven MPC meetings. Is he the only MPC member who realises the widespread damage caused by doggedly holding interest rates at 5%? Are the other members so blinkered by the target that they can’t see the wider issues?
What do you fear most – a 5% to 7% increase in inflation or the potential loss of your job? It is time for the government to either remove the BoE’s independence or give it more latitude when it comes to the 2% inflation target.
There is not a snowball in hell’s chance that we will see 2% inflation over the next 12 months so the BoE should stop flogging a dead horse and deal with the more important issues instead.