FORMER Monetary Policy Committee member Danny Blanchflower has during his visit to Scotland this week pulled no punches in his assessment of the Conservatives’ economic track record since they came to power in 2010.
It would be good, of course, if they would listen, but there sadly seems little prospect of that.
However, it is important that eminent economists make their voices heard, and loudly, in these days of baffling policy decisions.
Mr Blanchflower, who has been in Scotland for the University of Glasgow's Adam Smith tercentenary celebrations, has also come across this week as truly exasperated by the extent of the rate rises implemented by the Bank of England’s Monetary Policy Committee. He believes the Old Lady of Threadneedle Street’s own forecasts published in May show a need to be cutting rather than raising interest rates. This is an area in which he has considerable expertise, having served on the MPC between 2006 and 2009.
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Again, it is good to hear a robust challenge on the interest rates situation.
Mr Blanchflower, who is Bruce V. Rauner ’78 professor of economics at Dartmouth College in the US and a visiting professor at the University of Glasgow, noted that more than 100,000 households a month in the UK are coming off fixed-rate mortgage deals.
Base rates have surged from 0.1% in December 2021 to 4.5%, with economists and financial markets pricing in further hikes in the benchmark cost of borrowing. So there is no doubting that huge numbers of people whose fixed-rate mortgage deals secured in more benign times have come to an end, are doing so now or will do soon will be burdened by enormous increases in their outgoings. And this is on top of the general cost of living crisis.
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Household energy prices in the UK might have eased a little bit but they remain excruciatingly high by historical standards.
The extent of the pressures on households is plain to see.
And, in the context of interest rates, it does not seem like a great idea to bear down too much on people’s disposable incomes in these tough times given the effect on aggregate demand and growth.
Meanwhile, the significant impact on the housing market from the rises in interest rates which have already occurred is becoming clearer by the day.
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A survey published this week by the Chartered Institute of Procurement & Supply and S&P Global showed UK housebuilding activity tumbled last month at the fastest pace since April 2009 - excluding the decline during the initial coronavirus pandemic lockdown in 2020 - as higher interest rates took their toll.
CIPS warned the drop would “send a chill down the spine of the UK economy”. May is the sixth straight month in which UK housebuilding activity has fallen.
Mr Blanchflower is surely quite right to question why policymakers seem to view the notion of a protracted period of no growth, with all that means for unemployment and living standards, as somehow okay, as they prioritise reducing inflation.
At a Glasgow Talks event on Wednesday, hosted by Glasgow Chamber of Commerce and held in conjunction with the University of Glasgow’s Adam Smith Business School, he showed the chart of the Bank of England’s latest forecast for UK gross domestic product (GDP) growth published last month, when the MPC implemented a twelfth straight rise in UK base rates to take them to 4.5%.
He concluded that this chart, based on market interest rate expectations, showed on the central projection that the UK economy would “not grow at all” between now and 2026.
And, with a tone which seemed like incredulity, he said: “Zero growth. That is your job – to get the economy growing.”
Mr Blanchflower meanwhile declared the Conservative Government was “utterly incompetent” on the economy.
This view was in stark contrast to that expounded by Secretary of State for Scotland Alister Jack in the wake of Scottish GDP figures published late last month.
These GDP figures showed the economy in Scotland grew at four times the pace of that in the UK as a whole in the opening quarter of this year.
Mr Jack said: “Our economic outlook is looking encouraging with the first quarter of this year showing strength due to the swift action of this Government to avoid recession.
“The UK Government is creating jobs, boosting trade and encouraging investment.”
When it comes to whether to believe the big talk of Mr Jack or the view of Mr Blanchflower on the Tories’ economic track record, there is no contest.
As my column in The Herald on Wednesday observed, policies to promote growth from the Tories have remained conspicuous by their absence.
And it is easy to see what the UK Government has been doing that might have increased the chances of recession, notably Brexit. For years now, Brexit has weighed heavily on UK trade and, if things continue as they are, will keep on doing so in coming decades. Likewise, Brexit has hampered investment.
Coming to the “jobs” aspect flagged by Mr Jack, it is worth observing the UK’s Brexit-fuelled skills and labour shortage crisis.
On the topic of what the Tories have been doing on the economic front, Mr Blanchflower puts it rather more bluntly with his “utterly incompetent” observation.
Looking at the cold realities of the situation, it does seem that the eminent professor sums up things rather well.
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