Nope: No Signs That Britain Has Reached the Edge of Its Debt Capacity and Needs Fiscal Consolidation Either
I understand the argument that sharp tax increases and spending contractions are needed in an economy in recession if its government has lost the confidence of the markets and can no longer borrow without triggering expectations of national bankruptcy via inflation. I believe it. That is the constraint on expansionary fiscal policy as an employment- and production-boosting stabilization policy tool.
But such situations are visible in the bond market. And Britain right now is not in such a situation--no more than the United States is.
So I genuinely do not understand what Tim Besley and company think that they are doing. Fiscal 2010-11 begins in a month and a half!
Ilona Billington and Natasha Brereton:
U.K. Jobless Claims Jump: LONDON—British unemployment rose sharply in January after two months of declines, highlighting the fragility of the economic recovery, while average earnings rose at a record-low pace for a third straight month, data showed Wednesday. Minutes from the Bank of England's February Monetary Policy Committee meeting also showed policymakers were unanimous in their decision to suspend the bond-buying program in February, but that for some members it was a close call. The releases keep the possibility of further BoE easing alive, and signal that the central bank will maintain loose policy for some time.
The Office for National Statistics said the widely watched claimant count measure of unemployment increased by 23,500, the biggest rise since July 2009. The jobless rate remained at 5%. The increase, which compared with a revised fall of 9,600 in December, came as a surprise to economists who had forecast a fall of 13,500. The U.K. government warned last month that it expected to see unemployment rise again in the coming months as the economic recovery remains fragile....
The official measure of unemployment, formerly known as the International Labor Organization measure, fell 3,000 in the three months to end-December to total 2.46 million. That meant the unemployment rate stood at 7.8% over the same period, unchanged from the three months to September, the ONS said...