Sunday, 5 April 2009

From The Sunday Times
April 5, 2009

Alastair Darling: I was wrong on recession

David Smith and Isabel Oakeshott

THE chancellor, Alistair Darling, has admitted that he and his Treasury officials got it wrong over the length and severity of the recession and that he will be forced to tear up his economic predictions.

He will slash his growth forecast in the budget and warn that there will be no economic recovery until the end of the year, dashing hopes that last week’s G20 summit will be followed by an early upturn. “ I t ’ s w o r s e t h a n w e thought,” Darling said this weekend.

His admission comes as an opinion poll for The Sunday Times shows that Labour has enjoyed a “bounce” from the G20 summit. Support is up by three points to 34%, with the Conservatives unchanged on 41%. The Tory lead is down to seven points, its lowest since December.

In his April 22 budget, the chancellor will predict that the economy will slide by at least 3% this year, its worst single-year performance since the second world war and three times the rate of decline that he forecast in November in his prebudget report.

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The weaker growth forecast will mean public borrowing in the coming fiscal year will be well above the £118 billion level that Darling had predicted six months ago, renewing fears about the sustainability of public finances. Independent economists say borrowing could hit £150 billion or more.

In an interview with The Sunday Times, Darling insisted that the economy would emerge from the recession and last week’s G20 announcements would help. However, the chancellor conceded that he had underestimated the depth of the recession.

The economy’s dive over the past six months had been steeper than the Treasury had expected, he said, making it inevitable that he would be forced to revise his forecast significantly. Britain’s gross domestic product slid by 1.6% in the final three months of last year, its biggest drop since the recession of the early 1980s.

Treasury officials said that the first three months of this year were likely to see at least as big a drop. ”We won’t get the figures for another month, but we think they will be bad, because if you look around the world there’s nothing that tells you otherwise,” said Darling.

While refusing to be drawn on precise numbers, officials said his comments were consistent with a drop in GDP of at least 3% this year, compared with the November forecast of a 0.75% to 1.25% decline.

The economy’s biggest single-year fall in the postwar period was in 1980, when it shrank by 2.1% under Margaret Thatcher, followed by a further 1.3% decline in 1981.

It is the first time Darling has publicly admitted that the government’s estimates were wrong, setting the scene for a difficult budget, which the Tories will say provides further

evidence that the government has lost control of the economy. “I thought we would see growth in the second part of the year,” he said.

However, the chancellor now thinks any recovery will come later: “I think it will be the back end, turn of the year time, before we start seeing growth here.”

Darling insisted that last Thursday’s G20 agreement in London would help to boost the global economy, which was crucial for Britain’s emergence from the downturn.

However, he also said it was important to be honest with voters about the situation. “We have to be realistic about this,” he said. “You cannot, you must not, build up false hope.”

Darling spoke out after Barack Obama, the US president, hailed last week’s emergency meeting of G20 leaders as a “turning point” in the battle to repair the world economy.

Hopes that the summit could signal the beginning of the end of the recession were fuelled by a Nationwide building society report showing the first rise in house prices for 16 months and also a series of indicators in Britain and other countries which some economists interpreted as the “green shoots” of recovery.

Yet Darling cautioned against attaching much significance to the findings: “I would say with any figures that come out, you want to be pretty careful about one set of numbers, no matter what they show.”

Asked if the worst was over for the British economy, he replied: “I think there is some way to go yet. A lot really depends on actually how much other countries do.”

His downbeat tone is in contrast to the mood of euphoria that followed last week’s summit. But he insisted he was not being unduly pessimistic, emphasising that Britain would “come through” the recession and that the G20 deal would speed recovery.

Labour MPs have been buoyed by Brown’s performance on the international stage, but there are mutterings that his focus on the global crisis has led to domestic issues being neglected. Darling defended the prime minister’s decision to spend so much time abroad negotiating with world leaders, saying the G20 agreements would not have happened otherwise.

He hit out at bankers who hope for a revival of big bonuses when the economy recovers, warning there can be no return to huge rewards for risk-taking: “I still come across people in the banking industry who give you the distinct impression that once this is all over, we’ll be back to where we were.

“Well, no you can’t, the culture needs to change, the attitude needs to change – I’m afraid there are still people out there who don’t realise the world has changed.”

He dismissed claims by the Tories that Britain could have to seek help from the International Monetary Fund, saying the Conservatives had repeatedly “made the wrong judgement” over the economic crisis: “The position that David Cameron and George Osborne have taken is just plain wrong and if they don’t believe me, they should have a good look at what happened when they were around in office 15 years ago.”

Darling said he preferred the version of Tory policy being pursued by Kenneth Clarke, the shadow business secretary.

He admitted that he was “frustrated” by the continuing reluctance of British banks to lend, but said measures that the government has taken would soon have an effect.

No wonder we are up the creek, with such naivety among the people in charge. They ought to ask the Queen for advice, she has lived through it all and seems to have more common sense about her than this lot.

Sam Crispin, Shanghai,

This is just too scary. Here we are heading for an ice-berg and there's nobody who knows what he's doing up on the bridge! God help us all.

Bill Dixon, Hong Kong,

This is simply part of a carefully calculated marketing campaign. The 'spread' ranges from Brown and his euphoria to Darling and his doom'n'gloom. Next they'll lower some taxes in the budget, not to help small business but to make Labour LOOK good. Then Balls replaces Darling Its all so predicatble.

Scot Richards, Brisbane, Australia

Posted by Britannia Radio at 05:20