Labour were said to be very pleased with the Governor of the Bank of England's comments regarding the need for a fiscal stimulus - "In these extraordinary circumstances it would be perfectly reasonable to see some use of fiscal stimulus." The BBC's Nick Robinson leapt on these comments saying it put the Tories in a difficult spot.
But Benedict Brogan has an excellent post in which he shows the Governor's remarks are not as helpful for Labour as Robinson would have us believe.
To summarise:
- Although Merv is difficult to sack, he is nonetheless still on the public payroll so he is hardly going to start attacking Government policy, especially as it could spook the markets.
- Merv put some pretty big caveats on his support for a fiscal stimulus (it has to be temporary and we have to be told how the public finances will be returned to health in the medium term).
- Seeking to both stimulate the economy and raise its own popularity in the run-up to the next election, the Government would prefer any fiscal stimulus to be large and appear to be permanent, and will aim to downplay the extent to which any fiscal loosening is temporary. A temporary tax cut is likely to be largely saved rather than spent. And, a temporary fiscal stimulus combined with a credible plan to medium-term deficit reduction means a commitment to subsequent tax hikes and/or public spending squeeze, which makes it less politically attractive as well.
So, not exactly the wholesale endorsement of Labour's economic policy, hey Nick?
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