Tuesday, July 26, 2011

Economic stimuli hopes rejected

Source: Press TV

The British Prime Minister risks facing mounting pressure to introduce a “plan B” for the economy if an expected GDP growth report on Tuesday does not meet forecasts of 0.5 percent.

David Cameron has already dashed hopes that the government would use tax cuts or money printing to spur the economy and growth rates of less than 0.5 percent for the three months to June can put him in a tight spot.

This comes as analysts said they now expect the Tuesday report to put growth at 0.1 or 0.2 percent while several economists even predicted negative growth.

Business Secretary Vince Cable and Chancellor George Osborne have each suggested their own solutions to the problem.

Cable has proposed that the Bank of England uses quantitative easing to stimulate the limping economy with Osborne going for the business tax-cut option.

But both have been snubbed by the PM who has dismissed resorting to fiscal stimulus in the form of tax cuts or public spending rise as well as monetary stimulus in the form of interest rates reduction or printing money.

"There's no country, really, that can afford another fiscal stimulus.

They've all run out of money,” Cameron told a joint press conference in London with his Spanish counterpart Jose Luis Zapatero.

"There isn't some great monetary stimulus you can give when interest rates are as low as they are. The right step for an economy like ours is to get on top of your debt and your deficit and then make it a better place for businesses to grow and expand and employ people," he added.

Cameron further admitted that "our path back to growth is a difficult one and has already been a difficult one".

This comes as Labour has slammed the government's spending cuts and tax increases to tackle the national deficit by the end of the current parliament saying the government is cutting “too far and too fast” that could stall growth.

The opposition who are calling for an economic “plan B” say figures form Office National Statistics show the economy contracted 0.5 percent in the final three months of 2010 while growing by the same rate in the first three month of 2011 that means the economy has been “flatlining” since the coalition took power.

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