Britain Urged to Take ‘Immediate Action’ on Economy
The halfway point of any administration, when they are too far in to blame everything on the previous government, yet still not far along enough for their policies to have fully borne fruit, is always an interesting stage.
Wednesday marks the halfway stage for the current U.K. government's five-year term, and Chancellor of the Exchequer George Osborne is facing decidedly mixed feedback on his stewardship of the economy ahead of his so-called Autumn Statement next month, seen as an interim budget.
The Conservative Party, the senior coalition partner, has traditionally been viewed as pro-business, but is coming under fire from businesses frustrated at the country's second round of recession this year.
The program of quantitative easing instituted by the Bank of England (BoE), and backed by the government, appears to be having less impact the further it advances, as BoE Governor Sir Mervyn King highlighted last month.
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Economic indicators for industrial production in September and manufacturing and retail sales in October suggest that the outlook for growth remains weak, despite the U.K. moving out of recession in the third quarter of 2012.
The job market has been one consistent bright spot for the country.
Public sector borrowing figures indicate that as tax revenues have declined, public sector debt is likely to come in higher than expected for the first half of the fiscal year 2012-13 – even as growth has disappointed.
The effects of the much-vaunted "Funding for Lending" scheme, where U.K. banks are given access to cheap credit in the hope that it will be passed on to businesses, have yet to be felt.
Economists at Goldman Sachs suggest a "Plan A-" for the country. The alternative to Osborne's "Plan A" would involve sticking to existing targets, and continuing plans to tighten fiscal policy, but allowing the debt target to slip.
John Longworth, director general of business group the British Chambers of Commerce, said that the government "has been high on promises, but so far, low on delivery."
"Action needs to be taken immediately if we are to see the export-led recovery the government has been calling for, and investment in the U.K.'s crumbling infrastructure would allow businesses to transport their goods and people around the world.
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The government and the Bank of England should use their balance sheets, both for targeted investment and for securitization, at a time when Britain has both market credibility and rock-bottom borrowing costs, or we will continue to fall behind our global competitors," he added.
One of Osborne's most important legacy decisions will not be made for months.
The Bank of England's future governance is increasingly under the spotlight as King prepares for his last months in charge.
The government has advertised openly for the job for the first time ever.
Paul Tucker, King's deputy who was tipped to get the position, is viewed by many as compromised because of links to the manipulation of the London inter-bank offered rate (Libor) by U.K. banks during the crisis.
Other external candidates being debated in the markets include Mark Carney, King's Canadian counterpart, and Lord Adair Turner, currently chairman of the Financial Services Authority.
The Bank's Monetary Policy Committee (MPC) meets on Thursday with increasing doubts over whether it will vote to increase the amount of liquidity being injected into the U.K.'s banking system.
For months, analysts and economists have speculated that the BoE would announce further quantitative easing (QE) in November, but as early data for October has been disappointing and members of the committee have publicly cast doubt on the effectiveness of more QE, expectations have altered.
The chance of further QE being announced on Thursday is now "a touch below 50/50," according to Vicky Redwood, chief U.K. economist at Capital Economics.
She believes that more QE will happen next year if the MPC pauses in November.
The committee is expected to leave interest rates at their historic low of 0.5 percent, where they have stayed for three and a half years.
The Bank has also come under attack for being too "centralized and hierarchical" in the lead up to the crisis, with three separate government-commissioned reviews criticizing its role last Friday.
Andrew Tyrie, chairman of the influential Treasury Select Committee and a Conservative MP, criticized it for "defective governance" following the report.
—By CNBC's Catherine Boyle