Christine Lagarde’s inspectors should see that Britain is crying out for investment, not more austerity
Dear IMF officials,
Don’t be blinded by a single ray of sunshine. Britain may have avoided a triple-dip recession, but all the other economic news is weak at best.
At the heart of the problem are the country’s ultra-conservative banks and building societies. Either they are short of funds or reluctant to lend to all but the most financially secure borrower. As Vince Cable put it yesterday, they are working on a “pawnbroker business model” demanding “heaps of collateral” that he likened to a gold watch.
The result is that few small and medium-sized businesses can access the cheap credit on offer from the Bank of England.
Homebuyers are in a similar fix. Some estate agents report that cash buyers make up almost 50% of the house purchases in recent months. Housebuilding remains at levels not seen since the 1920s.
As you pointed out on your visit last year, the Treasury has room for manoeuvre should it want to promote growth. The trouble is that all the fiscal loosening this year will just go to overstressed hospitals, a bigger pension bill and a school system coping with a baby boom. There was little extra in the last budget for investment.
Among the voices over here calling for a more cautious approach to austerity are the former City regulator Lord Turner, who warned yesterday that the slowdown caused by aggressive cuts could trigger a cycle of debt.
“I think the difficulty is that when the public debt levels go up in the crisis you feel you’ve got to get that under control