The half-cock economy

Drive your car on full acceleration with the brakes on and you'll get a lot of smoke and flames and make a nice mess of the engine. Yet that's exactly what they're doing  to the British economy as the  Bank of England's monetary policy pulls in one direction and the government's fiscal policy works in another. No smoke or fumes yet, but the result is an economy run at half cock with a loss of growth, jobs and productivity. It gives confused signals on investment. Each policy cancels the other out and ensures that the economy is underpowered.J

ust when we need it strong to face the uncertainties of Brexit.

The Bank of England rightly sees a need for economic stimulus to boost Britain's slow recovery from the 2008 Great Recession. It has already printed 375 billion quid through Quantitive Easing It's keeping interest rates at record lows for the longest period ever. Both stimulate growth and investment, though the benefits are muted because the Banks have kept much of the QE money in reserves rather than lending it out while cheap money boosts house prices already well over the level at which most people can buy. 

In fact of course the Bank has to keep money cheap because  an increase in interest rates would do deep damage to individuals and businesses who've binged on debt just to keep going. So what else is it to do when government's fiscal policy works in the opposite direction? The governmental obsession with balancing the budget and reducing government debt means ever more cuts and lower public spending, not the balanced growth the economy needs.

 Only public spending can finance the mass build of public housing for rent the people need rather than building luxury accomodation for the rich as w the market dictates.Building millions of council houses drove economic growth under every government before 1979 .It could again. It won't happen unless the government borrows to finance it.

Only public spending can improve the transport network, the roads, railways and port facilities the nation needs. It can finance the investment in building andrebuilding hospitals, schools,local facilities,and the new power generation In all those areas Britain needs investment now, not big white elephant projects privately financed, as promised by this government. Neither pie in the sky nor HS2,3 or even 4 are any substitute for houses in fields right now.

Until the economy fires on both its fiscal and the monetary cylinders, growth will be lower, unemployment and poverty higher and families will be forced to sustain stagnant household incomes by debt, remortgaging their houses and having their kids live at home into adulthood. An economy with it's  brakes half on will be both more vulnerable and less confident in the face of the stresses and strains of Brexit which are to come.

Better balanced growth is the only way to allow the economy to deal with the burdens of debt. Cuts shrink.Growth builds a bigger economy to bear the heavier burden. The only alternative is to go on with the present folly of blowing  up  a growing bubble of debt: debt abroad to cover our 6% trade deficit, debt by businesses to keep going, debt by households to keep buying, debt by students to keep learning all supplemented by borrowing financed from rising house prices to maintain living standards. Better to stop blowing bubbles and remember that something which can't go on forever probably wont. Even if we do it at half cock.