The Budget gives George Osborne the chance to build on his mantraby Anatole Kaletsky / January 21, 2016 / Leave a comment
A “dangerous cocktail” of economic turmoil in China and collapsing oil prices now threatens Britain’s economic and government policies, according to George Osborne. But the strange thing about these two risks is that they both require a response exactly opposite to the one the Chancellor promised: determination to stick to the government’s pre-existing economic plans come hell or high water.
Luckily, Osborne’s record of politically adroit U-turning suggests that he may already understand this, and in fact plans to do the opposite of what he promised. If China really does descend into chaos this will provide a perfect excuse to suspend fiscal targets that were going to be missed anyway and instead ease up on austerity, while declaring more loudly than ever that “there is no alternative” to the abandoned targets. And if oil prices stay at their present rock-bottom levels this will create a golden opportunity to reconsider some of the government’s misguided priorities on tax and spending, while claiming that the original decisions were the right ones in the different circumstances that were prevailing when they were made.
China is a mystery wrapped in an enigma and will probably muddle its way through its present problems, as described here two months ago; but a Chinese collapse, though it remains unlikely, is a genuine threat to the world economy—and would have to be met with the opposite of the policies Osborne advocated in his “dangerous cocktail” speech. Austerity would have to be replaced with fiscal stimulus, near-zero interest rates would have to be continued for longer and Conservative euro-sceptics would have to abandon their fantasy about trading China as a substitute for Britain’s natural inter-dependency with the European Union.
The implications of a collapsing oil price are even more at odds with the Chancellor’s apparent views. Cheap oil, far from being a mortal danger, is an unqualified blessing for the British economy and…