You would be forgiven for being confused about the state of the British economy. The recent economic news is mixed and experts are divided in their views of the future.
On the positive side, the Bank of England’s latest inflation report forecasts a bumpy, but sustained pick-up, in economic growth in 2012. However, Moody’s recently changed its outlook on the government’s triple-A rating from ‘stable’ to ‘negative’ indicating a 30 per cent chance of a downgrade over the next 18 months. In the face of this uncertainty, UK companies are hesitant to invest the £730bn on their balance sheets as of last September, as Martin Wolf notes in his column on Friday.
Imminent budget decisions loom for the Chancellor. His first priority must be to keep his side of the policy bargain. There should be no relaxation in the aggregate fiscal stance. Any giveaways must be funded by new taxes or cuts elsewhere. Second, he should use his public platform to reverse the unfortunate perception that the coalition is anti-business and more concerned about redistribution than growth. This means pressing ahead with reform of the planning system which has been identified through independent research as the single biggest obstacle to small business expansion and job creation. It also means providing more certainty – perhaps a moratorium – on taxes that affect internationally-mobile investment and high-income professionals and entrepreneurs. Continue reading »