You could do better Ernst & Young tells Government
THE Government’s mid-term report card in relation to the economy should read ‘could do better’ according to the latest Ernst & Young ITEM Club report.
ITEM’s winter forecast report calls for a fresh approach to macroeconomic policy, in order to help stimulate investment and growth, and predicts UK GDP growth of just 0.9% this year before staging a slow revival to 1.9% in 2014 and 2.5% in 2015.
The report described the economy as muddling through on the Government’s ‘plan A’, with sluggish growth predicted for the next two years unless the Treasury and the Bank of England adopt a more innovative approach to fiscal and monetary policy.
Professor Peter Spencer at the University of York and chief economic advisor to the Ernst & Young ITEM Club, said: “The UK has crawled out of recession but the Government’s mid-term report card should read ‘could do better’.
“Innovative policies from the Federal Reserve have helped to put the US economy in a stronger position to withstand tax increases and spending cuts. A fresh approach to monetary and fiscal policy in the UK could help open the door to long-term sustainable growth.”
The Ernst & Young ITEM Club says the package of infrastructure spending announced in the UK Autumn Statement had the potential to be a real game changer, but the £5bn investment didn’t go far enough and was a missed opportunity.
“There is scope for borrowing to help fund infrastructure investment,” said Prof Spencer. “And the government could certainly do more to encourage housing investment, which is subtracting from GDP when it should be adding to it.
“On monetary policy, the inflation target has now become a risk to the credibility of the MPC and is long past its sell-by date. We are hopeful that the Treasury will see the arrival of a new Governor of the Bank of England as an opportunity to review the remit that it gives the MPC.”
On a brighter note he added: “The clouds of uncertainty are slowly beginning to clear, but only to reveal a low-growth landscape inhabited by consumers and corporates that lack confidence and policy makers that lack initiative.
“Plan A is still working but, for a real step change in the UK’s growth prospects, we will need to see a more imaginative approach to monetary and fiscal policy this year.”
