After a long time, Politics seems to be getting interesting again, so I thought it might be time to restart my blog.
With regard to this weeks mini budget, as with all budgets, there are two aspects: the economic and the political. The economic rationale for this package is questionable at best. The problems of the UK economy are structural. Productivity and investment are weak, infrastructure is under-invested and decaying. Small businesses are going to the wall and despite entrepreneurship being relatively strong in Britain, self-employment is increasingly unattractive. Red tape since Brexit has led to a significant fall in exports and the damage has been disproportionately on small businesses. Literally none of these problems are being addressed by this package. Even if the package were to stimulate some kind of short term consumption-led growth boom, this is unlikely to be sustainable, not least because what is being added on the fiscal side will be need to be offset, to a great degree, by the need for higher rates. Owing to the structural weaknesses of the economy, the depreciation of Sterling will not so much stimulate exports as import inflation. The Bank of England therefore will need to set rates increasingly high, and the sugar rush of this nominal fiscal stimulus will rapidly diminish. The fall in Cable yesterday was a sharp warning that an old fashioned Sterling crisis could be just around the corner.