Last week, when Bank of England Governor Mervyn King commented that the British economy ‘has not yet reached full fitness’, adding that ‘the recovery and rebalancing of our economy will be a long, slow process’ it seemed easy to put such gloomy concerns aside.
As our athletes hauled in a bushel of medals British pride was on an unshakable high.
Then the Spice Girls gyrated atop LED covered taxis, and Eric Idle reminded us to look on the bright side of life. Some wondered whether life had ever been so good and Olympic euphoria reached fever pitch.
However, the moment the closing ceremony ended pessimism returned. Some questioned whether the inspiring effects of the Olympics could possibly last, and in a BBC poll over half of people surveyed felt that the national uplift inspired by the games wouldn’t linger. It seems they were right.
Before the stadium’s even cleared of those final MaccyD’s wrappers, the news has become dominated once again with less than cheerful reports regarding Britain’s economic outlook.
Although some still harbour hopes of seeing a significant Olympic driven boost, other economists have echoed the warning issued by Prime Minister David Cameron: despite austerity being allocated five years, Britain may be suffering under measures until as late as 2020.
Meanwhile, the encouraging results seen by the government – such as falling inflation, maintaining rates at the 0.5 per cent record low, a slight fall in unemployment and slight success in pushing export-led growth – have received little in the way of a positive response.
Simon Lee, a particularly pessimistic politics lecturer from Hull University, has asserted his belief that a depression as absolute as that experienced in the 1930’s could be on the cards if drastic policies fail to be implemented. He stated: ‘Quite frankly the Olympics is helping to paper over the fact that we are on the verge of a depression. If the economy goes into freefall, then politicians desperate to get re-elected will discover that they can do much more radical things in the national interest.’
Although Lee’s opinions are shared by only a small minority, King did warn last week that it would take at least a further two years before output could reach the levels attained before the onset of the financial crisis. The majority of economists seem to be in accordance, feeling that the wounds inflicted on the economy by the euro-zone upheaval and global financial crisis could take until near the end of the decade to heal.
After mainstream efforts have failed to drive the British economy any significant distance forward, more radical ideas are being considered – such as completely nationalising the Royal Bank of Scotland.
Despite already injecting the financial system with large sums through the purchase of government bonds, the BoE may yet end up using newly created money from lenders to buy mortgages and loans. The BoE has further expressed concerns that the economy’s potential to grow without fuelling inflation in the process may have been damaged by the crisis. This could severely dent potential future attempts at quantitative easing.
Many are also asking that the gapping public finances stop being perceived as a fleeting problem which will pass with increased growth and instead recognise that the problem is structural, in need of more than a cowboy repair. Acknowledgement of this issue would further reduce government spending.
Britain might be producing some world class athletes, but since the onset of the financial crisis there has been a 4.5 per cent drop in overall production, and as of 2007 the value of the pound has dropped by 20 per cent whilst unemployment levels and consumer prices have leapt up. For the past nine months the British economy has contracted, government debt has soared above 1 trillion pounds and living standards have dropped to the lowest level in forty years.
Now that the fireworks and fanfares are over, economic woes have reasserted themselves with full force and it seems as though Britain’s celebrations might be rather short lived.
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