Last week saw a second monthly fall in unemployment and we had some more good economic news today. Inflation has fallen to three per cent – down by 0.5% and government borrowing fell even more than was thought last year, so that in two years the Coalition has reduced Britain’s deficit by more than a quarter.
Two years ago people were asking whether Britain would join the growing list of countries in crisis. Important institutions questioned whether the UK could deal with the huge debts that were built up in the boom times and then exposed as unsustainable in the bust. We had the worst deficit in the G20 – worse than Greece! That is no longer true. Our record low interest rates are a tangible sign that investors around the world once again believe in Britain. Our deficit is falling, inflation is falling, unemployment is falling and better times lie ahead.
The two most respected international organisations that look at the British economy have made their assessments this week: the International Monetary Fund’s Christine Lagarde, has come to town to deliver the IMF’s annual report card on the British economy; and this morning the Organisation for Economic Cooperation and Development published its Economic Outlook.
The IMF starts by stating that decisive action to tackle the record budget deficit that this Government inherited is “essential” and that “substantial progress” has been made. When asked this morning what might have happened if this Government had not acted to deal decisively with the deficit, Mme Lagarde’s answer was stark: “I shiver.”
Although there are many complaints from interest groups about cutbacks, the thing people have noticed in their daily lives is higher prices. That’s why this morning’s news that inflation has fallen is especially welcome. We are heading in the right direction.
The IMF notes recent falls in unemployment as a positive sign. Indeed, it notes that there have been “fewer employment losses than in the aftermath of previous major UK recessions”.
The current pace of deficit reduction is “appropriate” and the first line of defence against slower economic growth is further action on monetary policy and credit, not yet more government borrowing. The OECD takes a similar view: “the ambitious Government plan to restore fiscal sustainability remains on track and appropriate”.
The UK is putting finances in order and as I said in my last blog, we need the euro-zone to do the same. The IMF says that setbacks in the euro area are the “key risk to economic prospects and financial stability in the UK”.