Britain’s deficit-reduction program will remain on track this year because tax rises and spending cuts will not stunt growth enough to cause a double-dip recession, according to a large majority of economists.
Today’s rise in the rate of value added tax to 20 percent, were a big gamble, but one that was likely to pay off. Their biggest concerns were over Britain’s stubbornly high inflation and the risk of an intensifying euro zone sovereign debt crisis imperiling economic recovery. In the survey of 78 economists, including 10 former members of the Bank of England’s monetary policy committee, 43 thought the deficit reduction plan would be “on track” by the end of the year. Only 13 of those who expressed a clear preference said an alternative “Plan B” was necessary.
The recovery is said to have sufficient momentum to avoid a deep double-dip. Less pleasing for the coalition government and the central bank is rising concern over high inflation, forecast to continue throughout 2011, partly as a result of VAT hikes. The MPC is already concerned that inflation will top 4 percent this spring and that the fear of ingrained inflation might force the Bank to raise interest rates.
Many of the economists surveyed said the Bank had lost credibility as a result of its poor recent inflation-forecasting record. Patrick Minford of Cardiff Business School said: “The Bank has drifted into dangerous nonchalance over stubbornly high inflation.”
SOURCE: WSJ
