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Thursday, January 27, 2011

Soros Warns About Cuts

George Soros has issued a warning at the Davos financial summit that Britain's austerity programme may push the country into recession again.

Whilst it should not be forgotten that Soros made money out of betting against the UK in 1992, when the UK was pursuing the folly of the exchange rate mechanism, he may well have a point.

Cutting public expenditure, and hoping that the private sector will take up the slack will only work if there is room to significantly loosen monetary policy.

Interest rates are near zero, there is no further room to loosen monetary policy. Additionally, banks are steadfastly refusing to lend money at rates even vaguely comparable to the Bank of England rate.

It seems that Osborne's austerity programme was a leap in the dark, based on hope that the brief surge in the economy last summer was sustainable.

Plan B, as and when Osborne creates one, will doubtless have to be unveiled before this coming summer.

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