The governor of The Bank of England in announcing recently another round of quantative easing said that he feared there might be an economic slowdown worse than in the 1930s. He may have been exaggerating in order to justify the bank's decision to print more money at a time when inflation in Britain is running at around five percent or double the bank's target.
The economic situation is grim. British consumers are facing wage freezes, increases in energy bills (gas, electricity and gasoline) and rising food prices. Rises in unemployment seem inevitable and living standards are likely to fall further. Borrowers such as those with variable interest mortgages are cushioned by ultra low interest rates while savers and those on fixed incomes are being clobbered.
The British government, determined that Britain must limit its indebtedness and keep its borrowing costs under control, is sticking to its planned cuts in public expenditure and refuse to reduce taxes to stimulate consumer spending. So far British sovereign debt has avoided a downgrade. But if the government's target of eliminating the deficit within the life time of the current parliament is to be attained the country must return soon to growth. Growth will, however, be difficult to achieve without a fiscal stimulus.