George Osborne’s Big Idea in his Budget speech is for a more growth-friendly Bank of England. But it’s fiscal, not monetary policy, that will get the economy out of its current mess
This is a highly political Budget reminiscent of Gordon Brown in his pomp – and not surprisingly, given the Chancellor is under pressure from his own troops, from business and from an increasingly disenchanted electorate.
There is little in aggregate for growth on the fiscal side despite the new Office for Budget Responsibility growth forecasts being very disappointing indeed. There are some sensible moves on infrastructure with the Treasury at last taking on more of the risk via guarantees.
There are also some pretty bold, hopeful and unusual steps on housing, where the state is now subsidising people to spend more than the banks want to lend to them – in an interesting reversal of the idea that borrowing too much was what got us into this problem in the first place.
But the big bazooka – if there is one – is probably in the changes that seem to be being made to the way that the Bank of England operates, giving it more room to emphasise growth than it has had in the past.
There is growing excitement that the new governor, Canadian Mark Carney, will be more innovative and growth friendly in monetary policy than his rather staid predecessor Sir Mervyn King.
That is all to the good, but many commentators believe that it is hard for monetary policy to do much more at present with interest rates already so low and firms and families reluctant to spend because of a lack of confidence about future demand.
In those circumstances fiscal policy really should be taking the strain as so many economists argue – and multipliers (the impact of an increase in public spending on growth) are especially large. But on that more Keynesian approach, the Chancellor will not move. Let’s see if Carney gets him out of jail
