THE sound emanating from the Treasury is the noise of George Osborne fiddling while the economy remains stuck in recession.
With the Chancellor sitting on his hands (when not fiddling), it has been left to the Bank of England to provide the stimulus the economy so desperately requires. Quantitative easing (QE), which aims to boost output by bolstering money supply, has since March 2009 been the only tool at the Bank's disposal with base rates already slashed to 0.5% Some £375bn has been injected into the economy, with some success. But it is a crude tool. It is not targeted at any particular part of the economy, making it difficult to measure impact.
It has a serious disadvantage compared with fiscal policy measures, such as cutting VAT to help consumers or investing in capital projects. But the Bank mounted a spirited defence of QE yesterday, insisting that even pensioners and savers were better off thanks to the programme. However, critics continue to challenge the Bank's position. They say QE has a detrimental impact on savers and those buying an annuity for their retirement because of the impact on the value of their retuirement income.
There are two sides to the story. As Monetary Policy Committee member Martin Weale tells The Herald exclusively today, it is young people who have borne the brunt of the double-dip recession as job opportunities have diminished. But, without QE, Mr Weale insists, the economy would be in an even poorer condition, with fewer chances still for those entering the job market. QE has boosted GDP (the measure of Britain's economic output).
Today's revised GDP figures for the second quarter of this year might show a slightly less steep fall in output than initially estimated but will almost certainly confirm that the economy remains stuck in a double-dip recession. Meanwhile, public sector borrowing figures show that the tax take is falling while the cost of welfare benefits continues to rise. There is silence in the space where the Coalition band should be leading the so-called "march of the makers", Mr Osborne's mythical army of export manufacturers driving the country out of recession and into recovery. But the manufacturing sector continues to struggle. British consumers have little or no money to spend on its products or lack the confidence to make major purchases in the face of continuing job uncertainty. Severe public spending cuts have worsened the outlook.
The Chancellor blames the ongoing Eurozone crisis for Britain's continuing woes. The present haggling between Athens and Berlin over the pace and scale of the Greek austerity programme has not helped. However, there is a raft of evidence to point to British-made economic troubles. The argument for Plan B could not be more compelling. Even those economists who once cheered Mr Osborne's austerity measures are now calling for a new economic direction. If the man at the podium is incapable of changing his tune, it is time for a new conductor.
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