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Daily View: Fall in GDP

Clare Spencer | 10:01 UK time, Wednesday, 26 January 2011

Closing down sale in Wigan

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Commentators predict what will be done about the fall in the UK's GDP.

that there is only one choice for the government now:

"At the bottom of a recession you do not waste money trying to boost investment when there is no demand to sustain it. You go for liquidity. You put cash into circulation. You do not increase VAT, but push prices down, rather than up. Give away pensioner coupons, vouchers and scrappage schemes. Give money to those who will spend it, such as benefit recipients, not those who put it in a drawer, such as banks."

the government's optimism:

"It hopes that people will be impressed by its determination to cut borrowing and therefore to reduce potential pressures on the public purse - so impressed that consumers will spend more, businesses will create more jobs and entrepreneurs will start new businesses, all based on the confidence that their future taxes will be lower than today. Why has the Government decided to bet the economy on this untested theory?"

Chancellor of the Exchequer George Osborne's next move:

"Before long, and certainly well before the Budget scheduled for 23 March, he will have to decide whether to reprise and tweak one of Margaret Thatcher's most famous catchphrases - 'U-turn if you want to, the boy's not for turning' - and carry on regardless. He will, we know, allow what the economists call the 'automatic stabilisers' to work, however, which will soften things a little. In other words, if the economy turns down again, he will allow the deficit to widen as tax revenues fall and spending goes up with unemployment.
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"That's because ministers want to deal with the underlying "structural" deficit rather than the "cyclical" one, and that is certainly preferable to another turn of the screws to try to get the borrowing numbers back on track. But it will still be a squeeze, and will carry the risk of failure. Or he can quietly ditch his fiscal austerity plan in the light of changing circumstances and administer a mild stimulant to the economy. Might he even be tempted to postpone tax rises due in April?"

more sure that George Osborne will stick to his current deficit-busting policies:

"For Ed Balls, the new shadow Chancellor, the latest figures will be like manna from heaven, though he would be well advised not to take pleasure in economic hardship. Even so, the latest numbers lend support to his view that this is no time to be cutting the deficit. The Government will nevertheless stick to its guns. Mr Osborne is not for turning, and indeed it is a key part of the deficit reduction plan that he doesn't, for the whole point of it is to give the private sector the room and confidence it needs to invest and create jobs."

Jeremy Warner's sentiment:

"The coalition government's economic policy is in disarray. George Osborne's only response is that he is not for turning. Ed Balls is going to have a field day."

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