Downing Street Says

Asked for a reaction to the IMF report, the Prime Minister s Spokesman (PMS) told the assembled press that the report made clear that we were facing to use their words, a global economic slump, with the slowest growth in the world economy since the Second World War. If you looked at the three years of this slump as they called it, 2008-10, as a whole, Japan and Italy were among the G7 countries that were forecast even on the basis of their forecasts to have deeper and longer recessions than the UK.In 2009, the forecast for Germany and Japan was very close to the UK. It was important to remember that the cause of this economic slump was global recession in the financial sector. It had got much worse since the collapse of Lehmans in September and obviously those countries that were going to be hit particularly hard were going to be countries with large financial sectors.The question was what do you do about that and the Prime Minister was absolutely confident, as he was setting out today, that the Government s plan for stability and recovery, which was first re-capitalisation of the banks, then a fiscal stimulus and then action to get lending moving again, was the right approach and was in line with the approach of every other major economy.As the IFS had said today, their central forecast was that the UK would avoid deep and prolonged recession thanks to the enormous monetary and substantial fiscal stimuli already announced. Asked whether the Prime Minister had been saying all along that there would be a deep recession, the PMS replied that these were clearly difficult times. The Prime Minister had been talking about a recession long before we went into this recession.It was also worth remembering that the US and the Euro area went into recession before the UK did, so we had got into this later than other countries.If you looked at the three years of figures as a whole from the IMF report for Italy, Japan and the UK, people would see recessions for some G7 countries that were both longer than in the UK due to negative growth in two of those three years and on a cumulative basis, deeper recessions than in the UK. So people had to look at this over the global slump as a whole. If you took the IMF figures, the UK was at 2.8, Japan was at 2.6 and Germany was at 2.5. It was also not clear from these forecasts what account if any they had taken of the substantial package of measures we announced last week to get lending moving in the economy again.The UK also tended to report its data earlier than other countries, so people would have seen Q4 data for the UK but we had not yet seen the Q4 data for the US or other countries that were being significantly affected like Germany and Japan.Asked if the Prime Minister would accept the IMF s analysis or would he dispute some or all of it, the PMS said that we would do our forecasts at the time of the Budget and we would not make snap judgements. As with any forecast there were uncertainties.Asked if there was a reason why the growth forecast figures released in the PBR were hopelessly out in a matter of weeks, the PMS said that this was the third forecast we had had from the IMF in a matter of months, so these were clearly very uncertain times in the global economy and we had seen a significant deterioration in global economic prospects in the last few months of 2008. That was now widely expected. The PMS repeated that we would not make snap forecasts today; we would update our forecasts at the time of the Budget.Put that the Prime Minister had been saying that we were better placed than other countries to withstand the recession and now the Government was saying that we were more exposed due to the large financial sector, the PMS replied that people needed to make a distinction between the shock that hit the economy, which was the global financial recession which had hit the UK hard because we had a large financial sector.It was then a matter of how well placed you were to respond to that. We believed that we were well placed in order to respond to this because we went into this recession with much lower public sector debt than many other countries. We had been able to allow our public sector deficit to rise, while over the medium-term keep our public finances on a sustainable basis. Other countries had not been able to do that in the same way.We went into this recession unlike most previous recessions, as the Prime Minister had said today, with not high inflation but low inflation and therefore we had been able to use monetary policy to respond to the recession as well.

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» Wednesday, January 28, 2009

Economy

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