IN its latest report the Bank of England monetary committee has rejected the line put forward in the budget by the Chancellor of the Exchequer that ‘the recovery’ will begin next year.
The bank predicts that there will be a huge 4.5 per cent year on year decline in the economy. This is a full one per cent more than Chancellor Darling’s prediction of 3.5 per cent.
It adds that: ‘The prospects for economic growth remain unusually uncertain, reflecting the exceptional economic and financial factors affecting the outlook.’
It continues: ‘There are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained.’ Capitalism is clearly in a no-win situation.
‘But in the light of the state of balance sheets particularly in the financial sector, the committee judges that the risks are weighted towards a relatively slow and protracted recovery.’
So much for the Chancellor’s budget calculations!
The Bank of England governor in his report points to a conflict of opposites within the UK capitalist economy.
He says: ‘The outlook for domestic economic activity continues to be dominated by opposing forces. Weak global demand, combined with the process of adjustment under way in the UK economy, as private saving rises and banks restructure their balance sheets, will continue to act as a significant drag on economic activity.’
Unemployment is clearly going to continue rising dramatically.
‘But pushing in the opposite direction, there is considerable economic stimulus stemming from the easing in monetary and fiscal policy at home and abroad, the substantial depreciation in sterling, past falls in commodity prices, and actions by the authorities internationally to improve the availability of credit.’
However the collapsing pound has inflationary consequences. ‘CPI inflation remained close to 3%, significantly higher than the 2% inflation target. Past falls in sterling continued to put upwards pressure on inflation.’
The contradiction is that food price inflation is rising while ‘the degree of spare capacity in the economy is increased further and the loosening in the labour market contributed to a sharp easing in pay pressures.’
Put crudely employers are resisting wage claims using the fear of unemployment to do so, at the same time as the cost of living is rising.
The report says that there are ‘risks to the inflation outlook in each direction. . . . The weakness in global activity in 2008 Q4 and 2009 Q1 has been accompanied by a very sharp decline in world trade.’
The report adds that: ‘The outlook for domestic activity and inflation continues to be dominated by the balance between opposing forces. The adjustments under way in the UK economy, combined with weak global demand, continue to act as a significant drag on economic activity. But pushing in the opposite direction there is considerable economic stimulus in train. That stimulus should lead to a recovery in growth over the forecast period, but the strength and timing of that recovery is highly uncertain.’
The report concludes ‘There are significant risks to the inflation outlook in each direction, with downside risks from weaker activity and an upside risk from the depreciation of sterling. The assessment of these risks is key to MPC decisions.’ British capitalism is walking on a high wire tightrope, with an economic gale blowing hard.
In fact rising food prices at the same time as the bosses are closing plants and seeking to cut wages is a formula for an explosion of the class struggle in Britain.
This will pose in front of the working class resolving the contradictions of capitalism by overthrowing it, taking power and establishing socialism.
