Ten years ago, and presumably without any sense of risking fate, then-Labour Chancellor of the Exchequer Gordon Brown declared he had exorcised boom and bust. Next week, Prime Minister Brown will end the phony political war Britain has been engulfed in for the past year and likely announce a general election. The election will be held in the midst of the most terrifying bust the country has experienced since the Jarrow March and the Great Depression.
Britain’s economic plight—its sky-rocketing public spending, massive borrowing, huge debt mountain, falling exports and slumping currency— will be the main territory this election will be fought over. But if any British voters had expected to secure from the three main parties a clear statement of intent on what they would do, if elected, to dig Britain out of bankruptcy, the long run-up to the election announcement should have disabused them.
Last week, Britons who cared to find out more about the choices on offer had the opportunity to watch a debate pitching the Chancellor Alistair Darling, the Conservative George Osborne and the Liberal Democrat Vince Cable.
Judging by the audience ratings, and hardly surprisingly, many Britons decided to escape the “debate of the century” by watching a competing episode of the popular soap, “Eastenders,” or its well-followed rival “Coronation Street.” They wouldn’t have missed anything—those who chose the soaps over the debate would be as informed as those who braved a debate of obfuscation, avoidance and smallness. Details? Forget that. It would be hard to disagree with the guess Edmund Conway, the economics editor of the Daily Telegraph, hazarded that the debaters were clearly under orders to “talk about economics as little as possible.”
The insipid debate came just days before the U.S. bond fund PIMCO warned that Britain risked being caught in a “debt trap” and locked in a near-future vicious circle of rising debt costs with global investors demanding a penalty fee on gilts to protect against inflation. And warnings have come thick and fast—from the IMF, OECD and the rating agencies, who have hinted that Britain’s AAA rating will be downgraded—not quite to junk status—if something isn’t done and soon.
Officially, Britain’s recession ended in the last quarter of 2009 when the country secured an anemic growth rate of 0.4 percent. For ordinary people it would have been hard to tell the difference. Weak earnings growth and high inflation meant that the average UK household was 3.8pc worse off in February than it was the year before. Most of the growth was dependent on public spending and company inventories being stocked ahead of Christmas.
The slump in the value of the pound sterling—it is down about 25 percent against the dollar since the start of the financial crisis and has slid against the euro precipitously too —is hurting UK households, making imports more expensive. So far there has been no upside from a weak pound—British exports have not fared well as had been hoped and there is no sign yet of an export-led recovery. Britain’s trade deficit, both with Europe and the rest of the world, widened considerably in January to its highest level since August 2008 with exports dropping sharply and imports rising. That leads to the question of how low does the pound have to go before there is a pick-up in exports?