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Zombie economy promises frights in store for us all
Neither alive nor dead, the UK economy is in limbo land, staggering along courtesy of taxpayer billions, low interest rates and a short-term VAT cut
Larry Elliott, economics editor
guardian.co.uk, Thursday 5 November 2009 20.12 GMT
Zombie economy: Night of the Living Dead all over again. Photograph: Ronald Grant
Welcome to the zombie economy. Banks stagger along courtesy of large slugs of taxpayer money. The housing market is puffed up by the lowest bank rate in history. The Treasury's time-limited VAT cut and cash-for-clunkers is providing a temporary boost to consumer spending. Yet the economy continues to struggle. Neither alive nor dead, this is limbo land.
Let's recap. The Bank of England's announcement today that it was creating another £25bn of electronic money over the next three months took the total to £200bn. There is no suggestion that the Bank rate – pegged at 0.5% since March – will be raised soon. The recession (the longest since modern records began in 1955 and on course to be the deepest since the Great Depression) has decimated tax revenues and will leave the public finances in the red by £175bn-plus this year.
And what have we to show for all this? Not much. The cocktail of cheap money, quantitative easing and deficit financing has arrested the economy's decline but that's about it.
The quantitative easing programme involved Threadneedle Street buying government bonds from the big financial banks in the hope that banks would use the extra cash to boost lending to small businesses and individuals.
But lending to these groups is going down rather than up: instead of helping the real economy, QE has allowed the commercial banks to play the casino economy. Asset prices – shares, commodities, property – have all been booming. Given that it was an asset prices bubble that got us into this mess in the first place, this is hardly progress.
Neither alive nor dead, the UK economy is in limbo land, staggering along courtesy of taxpayer billions, low interest rates and a short-term VAT cut
Larry Elliott, economics editor
guardian.co.uk, Thursday 5 November 2009 20.12 GMT
Zombie economy: Night of the Living Dead all over again. Photograph: Ronald Grant
Welcome to the zombie economy. Banks stagger along courtesy of large slugs of taxpayer money. The housing market is puffed up by the lowest bank rate in history. The Treasury's time-limited VAT cut and cash-for-clunkers is providing a temporary boost to consumer spending. Yet the economy continues to struggle. Neither alive nor dead, this is limbo land.
Let's recap. The Bank of England's announcement today that it was creating another £25bn of electronic money over the next three months took the total to £200bn. There is no suggestion that the Bank rate – pegged at 0.5% since March – will be raised soon. The recession (the longest since modern records began in 1955 and on course to be the deepest since the Great Depression) has decimated tax revenues and will leave the public finances in the red by £175bn-plus this year.
And what have we to show for all this? Not much. The cocktail of cheap money, quantitative easing and deficit financing has arrested the economy's decline but that's about it.
The quantitative easing programme involved Threadneedle Street buying government bonds from the big financial banks in the hope that banks would use the extra cash to boost lending to small businesses and individuals.
But lending to these groups is going down rather than up: instead of helping the real economy, QE has allowed the commercial banks to play the casino economy. Asset prices – shares, commodities, property – have all been booming. Given that it was an asset prices bubble that got us into this mess in the first place, this is hardly progress.
