Time Flies

28th March 2013

I am penning this as I sit on a train travelling from London to Manchester.  The guard has just confirmed my journey time - two hours and eight minutes. If the Government succeeds with its plan for a new high speed rail link, HS2, then in twenty years time my journey will be reduced by an hour. Although the exact route has not yet been decided, the proposal is to build from London to Birmingham, and then in phase two, on to Manchester and Leeds. No matter how controversial, ministers are keen to support a project that potentially both improves the transport network and boosts the economy.

And right now, with the UK close to a triple dip recession, a boost to the UK economy would certainly be most welcome. Last week during his Budget speech, the Chancellor was forced to halve his economic growth forecast for this year. Four months ago he had predicted 1.2% growth in his Autumn Statement. The UK’s real economy remains below pre-crisis levels, noticeable amongst other major economic peers. There seems very little chance of a controversial scheme such as HS2 contributing much to the nation's GDP in the near future. Therefore the Government and the Chancellor are still left looking for other more tangible routes to foster growth.

The Government's latest ideas for growth were outlined in the Budget, although it was a vain hope that Plan A would be scrapped. The underlying path of fiscal tightening has been left untouched and ahead of the arrival of its new Governor, the Bank of England has been given a little more flexibility to carry further unconventional monetary policy. This is the primary lever for growth along with some increase in infrastructure spend and policy to accelerate the housing market. The downgrading by Moody's last month confirmed that fiscal austerity rather than stimulus is the order of the day - although in real terms, public spending has actually risen, particularly in healthcare and education. Indeed, the public sector has made a positive contribution to economic growth over the term of this Government.

Overall the Budget was seen as neutral, no budging from Plan A which is still reliant upon a recovery in the private sector - a private sector which continues to be mired in its own tough austerity, squeezed by a lack of credit, higher inflation and tax rises. Fixing the banks has taken longer than expected, whilst the nation's living standards have fallen as a result of a substantial devaluation of sterling with successive rounds of Quantitative Easing. QE has helped the Government to fund its borrowing at very low interest rates, but has also hit the spending power of savers and increased the deficit of private sector pensions. So no surprise that the Budget giveaways were aimed at the private sector - raising the minimum income tax threshold, scrapping petrol tax rises, helping people buy homes and cutting corporation tax. Time flies and we are more than half way through this parliament with the Government still searching for growth.