George Osborne is a bit like a chap I once sailed with, who set the sails at 9 am and thought that was it for the rest of the day, no matter what the weather was doing. His other job was driving a tank, so I could understand where he was coming from.
The only problem was that when the wind changed direction, he refused to change course or shift the sails, saying the previous wind direction would resume shortly. We hardly budged.
Osborne seems to be made of similar stuff. He’s made up his mind that he knows what’s happening with the economy. He’s dealt with it, and no one will be able to persuade him otherwise, regardless of any shifts in the economic weather. That might make great politics. I don’t know. But if consumers go into a major sulk, and sit on their hands, the economy could take quite a hit. What with the numbers of jobs being cut from public sector payrolls, and the effects of the EU going into freefall as the eurozone periphery debts consume what little confidence is left, Britain might find in the next few winter months, that things could get a wee bit thin. Spain has had a lousy Q3, as well as the other members of the PIGS reporting collapsing finances and bail-outs due any time.
The USA is also hitting the buffers. The extra $600 billion of QE has hardly been announced, but already all markets are retreating. The double dip recession seems to be getting awfully near now. Even China is hiccupping to a halt as the government there says it is about to raise interest rates. Shanghai’s stockmarket fell 5% yesterday.
But Osborne’s made up his mind. There will be no mamby-pamby QE taking place on his watch. Britain’s going to do its removal of easy social spending the hard way, regardless of what else is happening, and who cares how tough it gets.
Foundation X are worried that Osborne is merely adding to the downturn at the wrong moment, and he will draw down more rage on his head than the NUS have been able to drum up as yet. The IMF too are advising him to keep his options open as regards government spending until the recession is safely past.
They may well be right. Osborne though remembers the 1980s when Thatcher stood against the advice of all economists and cut spending in that recession, and she was proved right. Interest rates were able to fall, and the recovery sprang from there. But with interest rates already at next to zero, and sharp reversals in the growth rate looming, the only weapon left in his armory would be to increase spending to create some economic activity. Interest rates cannot fall any further. He might do well to turn to large longterm borrowing to give the economy a boost. Foundation X are so worried they are even offering Osborne free money to spend on infrastructure projects, like Crossrail, schools, roads and broadband.
But no. George knows what he’s doing, and won’t be needing any of that largesse on his watch.
He could be in for a shock, as the older heads are trying to tell him. This came in from my currency advisers today.
UK Consumer Confidence dropped to a 19-month low in October according to a report from the Nation-
wide Building Society amid brewing concerns about the sustainability of economic recovery as the government’s
ambitious austerity plan, a scheme amounting to the steepest budget cuts since World War II, looms ever
Sterling may seem to be performing well against otherwise weak currencies like the euro and yen
but in isolation, the positive sentiment surrounding the stimulus downshift from the BoE inflation report is wear-
ing off. To counter this fading trend, we were met with Chancellor Osborne’s rejection of the IMF’s calls for a
contingency plan should the economy falter, and a 19-month low in consumer confidence.
Now come on, George. Never close doors. Keep an open mind. If the wind changes you might need to turn the boat, or move the sails. OK? The economy is not a tank.