Insights from the UK and beyond
from The Great Debate UK:
--Gerard Lyons is chief economist at Standard Chartered. Any opinions expressed are his own. --
Britain is clearly a Jekyll and Hyde economy. Or that at least is what the Chancellor would like us to believe. The bad news we are now seeing in the economy, public finances and across parts of the financial sector will not last. We are in the Mr Hyde phase. But, don't worry, we will soon be back to the normal Dr Jekyll soon.
The Chancellor believes the recession will end by year end. That is credible. But then he believes recovery will be rapid, and after contracting 3.5 percent in 2009 we will see growth of 1.25 percent in 2010 and 3.5 percent in 2011. This is fantasy, particularly as this rapid rebound is expected to occur not only as the legacy of the debt bust lingers on, but also as fiscal policy is tightened aggressively through significant tax hikes, largely on those on high incomes.
Strong growth, tax increases and efficiency savings are, the Chancellor believes, about to reduce the budget deficit by half over the next four years. I have my doubts. The legacy of this borrowing binge will live on for much longer.