Revised growth forecast should mean reassessment of fiscal and monetary policies, says IEA expert
6 May 2021
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Emily Carver referenced in the Wonkhe
6 May 2021
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4 July 2024
Responding to the Bank of England’s revised growth forecast for the UK economy, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:
“The Bank of England’s growing optimism about the UK economy is welcome, but the prospect of a more rapid recovery should also prompt a reassessment of both fiscal and monetary policies.
“It looks increasingly likely that government borrowing will continue to undershoot the forecasts that the Chancellor used to justify the tax increases and departmental spending cuts announced in the March Budget.
“It may be too much to hope that the Treasury will already be rethinking the plans to freeze personal tax allowances and to raise corporation tax. But officials can stop casting around for even more ways to increase the tax burden. A booming economy will do the job of repairing the public finances for them.
“The Bank of England has at least now confirmed that it will slow the pace of asset purchases. However, this was always anticipated, and the plan to buy an additional £150 billion of gilts by the end of 2021 was unchanged.
“This may well prove to be a mistake. The additional gilt purchases were intended to offset downside risks to the economy and to inflation that have not materialised. Instead, almost all the usual inflation signals are flashing red.
“Indeed, there was not a single reference to the money supply (or anything related) in the Bank’s latest Monetary Policy Report. Even if you are not a diehard monetarist, that seems an extraordinary omission.
“The risks to inflation are surely skewed to the upside, given the prospect of a surge in pent-up demand fuelled by money printing. Unfortunately, governments and central banks around the world still seem hooked on providing even more policy stimulus.”
END
Notes to Editors
Contact: Emily Carver, Head of Media, 07715942731
Further IEA reading:
‘UK Debt in Perspective’ by Professor Forrest Capie and Professor Geoffrey Wood
‘A Briefing on the public finances: How deep a hole are we in?’ by Julian Jessop
“The Bank of England’s growing optimism about the UK economy is welcome, but the prospect of a more rapid recovery should also prompt a reassessment of both fiscal and monetary policies.
“It looks increasingly likely that government borrowing will continue to undershoot the forecasts that the Chancellor used to justify the tax increases and departmental spending cuts announced in the March Budget.
“It may be too much to hope that the Treasury will already be rethinking the plans to freeze personal tax allowances and to raise corporation tax. But officials can stop casting around for even more ways to increase the tax burden. A booming economy will do the job of repairing the public finances for them.
“The Bank of England has at least now confirmed that it will slow the pace of asset purchases. However, this was always anticipated, and the plan to buy an additional £150 billion of gilts by the end of 2021 was unchanged.
“This may well prove to be a mistake. The additional gilt purchases were intended to offset downside risks to the economy and to inflation that have not materialised. Instead, almost all the usual inflation signals are flashing red.
“Indeed, there was not a single reference to the money supply (or anything related) in the Bank’s latest Monetary Policy Report. Even if you are not a diehard monetarist, that seems an extraordinary omission.
“The risks to inflation are surely skewed to the upside, given the prospect of a surge in pent-up demand fuelled by money printing. Unfortunately, governments and central banks around the world still seem hooked on providing even more policy stimulus.”
END
Notes to Editors
Contact: Emily Carver, Head of Media, 07715942731
Further IEA reading:
‘UK Debt in Perspective’ by Professor Forrest Capie and Professor Geoffrey Wood
‘A Briefing on the public finances: How deep a hole are we in?’ by Julian Jessop
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