Weak UK recovery argues for consensus on cuts
– Ian Campbell is a Reuters Breakingviews columnist. The opinions expressed are his own –
A first estimate of UK first-quarter growth is a chilly 0.2 percent. Failure of government policy, the opposition will say. Shows the folly of proposed Conservative spending cuts and tax increases, Gordon Brown, the prime minister, will claim. But a colder financial look will see that enormous stimulus has so far produced the weakest of recoveries. Whatever the election outcome, the UK’s leaders are going to have to be grown-ups. In this emergency, cooperation – or coalition – is required.
No emergency, some might say. January was inclement and the first GDP estimate may well prove too low. A still nascent recovery can perhaps gain strength.
But it will have to do so in the face of declining government help, for all Brown’s stimulating talk. The VAT rate went up in January, helping government revenue and stabilising the fiscal deficit at a frighteningly high level. But the VAT increase also helps to explain the 1.7 percent quarterly decline in retail sales. The consumer is struggling. Petrol prices are at record highs. Some Bank of England monetary policy members are worried about inflation.
The UK’s dangers are great. The deficit is among the worst in deficit-torn Europe. For Ken Clarke, the shadow business secretary, the choice is between a Conservative government and the International Monetary Fund. His reasoning is that faced with a hung Parliament, the markets will pull the rug from Britain, Greek-style.
That disaster can be avoided. A consensus on cutting the deficit, in which parties share the blame for the national pain, would be a way forward. Fiscal tightening, especially through spending cuts, would help to contain inflation. The BoE would then be able to keep rates low, favouring a weak pound that would assist the export-led recovery that the UK needs.
The UK’s realities are uncomfortable for all the political parties. There are no easy solutions. First in the private sector, then in the public one, the country has lived far beyond its means for a long time. The essential belt tightening is going to be difficult for everyone. After the election, the UK’s leaders would do well to pull together on the belt.