One Cheer

The news that Britain has just crawled out of recession deserves at least a cheer. We were the first country into recession and the last one out. It is hard to agree with the Prime Minister that we were better prepared for the recession than any other country.

Most of the commentators have centred on how this sickly figure will affect the major parties at the polls. Almost no comment has been made about how this will affect those who have lost their job or, have taken pay cuts, to keep their job. Nor has there been any comment on what these figures tell us about the danger that has stalked the economy since we entered into recession.

The growth figures are not good news for those who are unemployed and seeking work. The unemployment total, thank goodness, has not risen to a record level - this is after all a record recession - largely because employers and employees have done deals on holding back real wages. Indeed some people have taken real cuts.

But the danger to the country is clear once we break down the total that gives the 0.1 per cent growth rate for the previous quarter. Performing disproportionately well have been those sectors affected by the VAT reduction and the car scrappage scheme. I was sceptical about both moves.

At best they bring forward consumption - they do not boost consumption permanently. My fear is that goods that might have been bough in January/February were bought before VAT returned to its 17.5% rate. Likewise people have brought forward car purchases to make use of the hefty subsidy tax payers were offering to individual buyers.

There is therefore every likelihood that the next set of figures, made worse by the length of the cold weather, may show a fall in output. And uncommented upon is the fact that this month sees the end of the Government printing money to buy its own debt.

The Treasury is clearly in panic over the Government's fuzziness over its expenditure cuts that are urgent and how this will affect gilt buyers when the Government has to go to the market to borrow. My guess is that Ministers will try and duck this issue until the election.

I guess we will see another round of printing funny money to buy Government debt. I also guess we will see the FSA directing banks to buy more Government debt as a way of (hopefully) shoring up their balance sheets.

Poor old country.