Subscribe

feed image

Our FX reports

Adam Solomon's insight into business and corporate FX issues.
Your Questions on foreign exchange sent direct to the professionals.
The Economy News brings you the latest foreign exchange rate news.

FX Latest

INSIGHT

Swiss economy to cool as global stimulus packages end
2011 will see the need for the world economy to stand on its own two feet once again say head of...Read more...
Insurers challenged by increased wild fire risks
With Russian wildfires grabbing the headlines, the Lloyds of London insurance market warns that...Read more...
Swiss bankers dismisses earning season hype
The Economy News presents an excerpt of an article looking into the hype that is the earning season...Read more...
Defending Woodford's Zimbabwean investment
It is lazy journalism to describe the Zimbabwean economy of 2010 as being one that is in scandalous...Read more...
Forex markets await the stress test
Mark Deans at MoneyCorp gives his morning verdict on the forex markets.Read more...
Home Economic Fundamentals UK Economic Osborne: Your economics are wrong
Osborne: Your economics are wrong PDF Print E-mail
UK Economic
Written by Will Peters   
Friday, 19 February 2010 14:03
The British Pound may not have liked the latest news on the growing fiscal deficit - but the worlds most respected economists say it is entirely necessary.
____________________

Fears of a double dip recession grew today after retail figures for January came in at below analyst expectations.

With the UK economy sitting on a knifes edge there is also growing consensus amongst economists that any knee jerk reactions to the budget deficit will shift the economy firmly into reverse.

On Sunday we heard that a prominent group of 20 economists had backed Conservative calls for action to be taken sooner, rather than later, on the UK budget deficit.

News yesterday that January witnessed the first deficit in years threw further impetus behind the need to address the budget deficit, and the British Pound fell in line with the news prompting Conservative sympathisers to suggest the market was behind fiscal cuts.

However, the letter from the pro-budget cut camp group of economists has prompted a rebuttal - this time from 60 of the world's most respected economists.

In two letters to the Financial Times, they said it could be "positively dangerous" to begin cuts - as the Conservatives are planning - and would risk tipping the economy back into recession.

The signatories to the letters include two Nobel laureates - Joseph Stiglitz and Robert Solow - and five former members of the Bank of England's monetary policy committee, including former deputy governors Sir Andrew Large and Rachel Lomax.

One letter organised by Lord Skidelsky, a cross-bench peer and biographer of the economist John Maynard Keynes, accused the authors of the Sunday Times letter of trying to "frighten" the public over the scale of the deficit.

"How do the letter's signatories imagine foreign creditors will react if implementing fierce spending cuts tips the economy back into recession?" they ask. "For the good of the British public - and for fiscal sustainability - the first priority must be to restore robust economic growth."

The other group, led by Lord Layard, emeritus professor of economics at the London School of Economics, commends Mr Darling's "sensible" plan for reducing the deficit.

"While unemployment is still high, it would be dangerous to reduce the Government's contribution to aggregate demand beyond the cuts already planned for 2010-11," they said. "History is littered with examples of premature withdrawal of the government stimulus, from the US in 1937 to Japan in 1997. With people's livelihoods at stake, a responsible government should avoid reckless actions."

On Wednesday we reported that Paul Krugman, the 2008 Nobel Memorial Prize in Economics winner, has firmly backed the UK Government's approach to the budget deficit. He used his regular column in the New York times to warn that a riposte to the pro-deficit camp was nigh.

Today he has stood firmly behind the letters.

Meanwhile a spokesman for the Chancellor, Alistair Darling, said that the letters belied shadow chancellor George Osborne's claim that there was a consensus among economists on the need for early action to tackle the deficit.

"Once again George Osborne has jumped on the wrong bandwagon. His judgment is wrong and his approach would risk derailing the recovery," the spokesman said.

"It's obvious to most people that government support is still needed until recovery is secured. It's a view shared by most other governments around the world of all political colours."
Last Updated ( Friday, 19 February 2010 14:08 )