Letter: For and against the manifesto for national recovery

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Sir: I write to support the general aim of your 'plan for recovery', and for what I see as the most important component, a large expansion of public (or mixed public/private) investment. I would also like to express scepticism about others of your proposals, which seem less helpful.

Take first the proposal for an 'independent' Bank of England dedicated to the achievement of 'broadly stable prices'. The trouble is that prices are affected by many things that would not presumably be under the Bank's control. The quickest way to reactivate inflation is to let the exchange rate fall - would the Bank be allowed to try to stop that? The quickest way to get the exchange rate down is to drop interest rates - would the Bank be allowed to reverse your proposed cut of interest rates to 5 per cent?

Or consider the case for your 'new economic forecasting unit'. It is true that the Treasury's forecasts have been wrong in recent years. But so have those of the majority of forecasting teams. The reason may be that we are in a major recession, and each major recession tends to be different. Guessing the future is therefore more an art than a science; and few can claim to have it. Who then would you choose to staff your unit? I can see a case for some institutional changes on other grounds; but not on the ground that they will make much difference to economic growth.

Underlying several of your proposals is the desire to reassure financial opinion. Markets do indeed need to be assured that growth can be attained without much increase in inflation. But I am afraid that the way to destroy that hope is to go for growth by reducing interest rates. Sooner or later, that is likely to undermine confidence, and force the brakes to be put on within a few years.

Yours faithfully,


Reform Club

London, SW1

23 October