View from City Road: Clarke is risking the economy and his future

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The Independent Online
Yesterday looked rather like the day the Chancellor succumbed to Treasury and Bank of England orthodoxy, and decreed that the UK recovery would be as slow and sedate as it was in 1981.

Never mind that this is an economy burdened with twice as much household debt as in the early Eighties, or that our export markets continue to be flat, or that the gap between actual and potential output is as wide as it has ever been during this recession and is still growing, or that there are tax increases and spending cuts worth more than 2 per cent of national income to be implemented in April.

Indeed, never mind about rebalancing fiscal and monetary policy - tightening fiscal and loosening monetary. Judge a Chancellor by his actions, not his words. According to Kenneth Clarke's failure to cut interest rates, both fiscal and monetary policy need to be tightened.

After all, inflation is lower than was expected at the time of the last interest rate cut, so that real interest rates are higher. And the pound has risen nearly 2 per cent since then. (Indeed, sterling is up by 7.9 per cent compared with the post-exchange-rate-mechanism low of 76.8 on the trade-weighted index last February).

All of which is pretty silly. True, the recovery is not going to go into reverse. There is certainly enough steam up in the economic engine room to see us through the year, despite the impact of tax increases. But there is a serious risk that the recovery will slow down so much that unemployment will stop falling, and that there will be new cries of distress from business.

Mr Clarke is not only taking risks with the economy, he is taking a risk with his own prospects of advancement. If the economy goes phut, Mr Clarke's candidacy for the job next door will not look so compelling.

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