According to the IMF's latest forecasts, the recession will last longer in Britain than in any other major economy. They are predicting a 3.8 percent contraction this year, and another 0.2 percent contraction in 2010 – by which time every other major economic area will be growing again, apparently.
So much for Gordon Brown's claim that Britain is best placed to weather the downturn, and Alistair Darling's assertion (on which his pre-budget report figures were based) that the UK's recovery would begin in the third quarter of 2009. Oops.
So what are the implications of the IMF's findings?
First of all, the UK's tax revenues will be weaker than expected, while social spending will be higher (as more businesses close and more people lose their jobs). That means the government is going to borrow even more than it plans, and that Britain's mountain of debt will get even bigger. And with a general election coming up, it's hard to believe that the government won't pursue more bailouts and deficit-financed 'stimulus' packages, so there's really no limit to how bad the public finances could get.
Consequently whoever wins the next election is – to put it bluntly – going to have one hell of a mess to clear up, and will probably have very little choice about the policy agenda they pursue. The words 'structural adjustment' spring to mind.
Another implication is that the government's measures to fix the economy are not working. No surprise there. Their policy prescriptions – which basically amount to just throwing vast sums of money at every problem – would be ineffective at the best of times. Unfortunately, however, the government's modus operandi makes things even worse. By reacting to every headline with a new, half-baked initiative, which may or may not be implemented, politicians create an atmosphere of uncertainty and further undermine confidence.
It's precisely the opposite of what they should be doing.