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Published on October 6th, 2011 | by David Christie
Image © [caption id="" align="alignleft" width="240" caption="The Chancellor George Osborne - is he subtly trying to change direction on the economy? Image from the Conservative Party's photostream"]The Chancellor George Osborne - is he subtly trying to change direction on the economy?  Image from the Conservative Party's photostream[/caption] The government insists that ‘there is no plan B’ for the economy, and that they are sticking to their original plan to reduce public spending and cut the deficit.  This was a theme which the Chancellor George Osborne reiterated in his speech at the Conservative conference on Monday, but despite this, there are signs that the government is subtly trying to change course on some of its economic policies.  Firstly, Osborne’s new credit easing scheme for small companies contains an implicit admission that the government has not been successful in getting the banks to lend more to small businesses.  Secondly, Osborne’s increased funding for broadband networks and other technology infrastructure could be viewed as a modest form of fiscal stimulus.  This conflicts with the stated purpose of the government's economic policy, which is to cut spending, not increase it. The Bank of England is also expected to announce another round of quantitative easing (or ‘printing money’) later this week.  Although the Bank of England makes its monetary policy decisions independently of the government, the fact that the government has not objected to more quantitative easing could be seen as a contradiction of the Conservatives' earlier statements on the issue.  When the Bank was pursuing quantitative easing back in 2009 (when Labour were in power), Osborne claimed that ‘printing money is the last resort of desperate governments when all other policies have failed’ (quoted at the end of this clip from the BBC's Daily Politics). It isn’t surprising that the government is starting to backtrack slightly: the economic growth figures are disappointing, and plenty of people have been telling them that their economic approach isn’t working: the opposition, the President of the European Commission, the IMF, even a Tory backbencher.  But the government can’t afford to be seen changing course now: doing so would be an admission that their original policy was wrong, which would damage their credibility.  Therefore their current strategy involves a bit of credit easing here, a few infrastructure projects there, and hoping that no-one notices.  But if the economic situation continues to worsen, they could be forced to make bigger U-turns which will be much more difficult to conceal. A worsening economic situation indeed seems to be on the cards: with Greece edging ever closer to default, the on-going Eurozone crisis could be about to plunge the world economy even further into chaos.  Looking at the situation pessimistically, if the government does opt for a serious change of course in the near future, it could turn out to be too little, too late: in the middle of another global economic storm, there might be little that the government could do to avoid further catastrophe.

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Is the government changing course on the economy?

The Chancellor George Osborne - is he subtly trying to change direction on the economy?  Image from the Conservative Party's photostream

The Chancellor George Osborne – is he subtly trying to change direction on the economy? Image from the Conservative Party's photostream

The government insists that ‘there is no plan B’ for the economy, and that they are sticking to their original plan to reduce public spending and cut the deficit.  This was a theme which the Chancellor George Osborne reiterated in his speech at the Conservative conference on Monday, but despite this, there are signs that the government is subtly trying to change course on some of its economic policies.  Firstly, Osborne’s new credit easing scheme for small companies contains an implicit admission that the government has not been successful in getting the banks to lend more to small businesses.  Secondly, Osborne’s increased funding for broadband networks and other technology infrastructure could be viewed as a modest form of fiscal stimulus.  This conflicts with the stated purpose of the government’s economic policy, which is to cut spending, not increase it.

The Bank of England is also expected to announce another round of quantitative easing (or ‘printing money’) later this week.  Although the Bank of England makes its monetary policy decisions independently of the government, the fact that the government has not objected to more quantitative easing could be seen as a contradiction of the Conservatives’ earlier statements on the issue.  When the Bank was pursuing quantitative easing back in 2009 (when Labour were in power), Osborne claimed that ‘printing money is the last resort of desperate governments when all other policies have failed’ (quoted at the end of this clip from the BBC’s Daily Politics).

It isn’t surprising that the government is starting to backtrack slightly: the economic growth figures are disappointing, and plenty of people have been telling them that their economic approach isn’t working: the opposition, the President of the European Commission, the IMF, even a Tory backbencher.  But the government can’t afford to be seen changing course now: doing so would be an admission that their original policy was wrong, which would damage their credibility.  Therefore their current strategy involves a bit of credit easing here, a few infrastructure projects there, and hoping that no-one notices.  But if the economic situation continues to worsen, they could be forced to make bigger U-turns which will be much more difficult to conceal.

A worsening economic situation indeed seems to be on the cards: with Greece edging ever closer to default, the on-going Eurozone crisis could be about to plunge the world economy even further into chaos.  Looking at the situation pessimistically, if the government does opt for a serious change of course in the near future, it could turn out to be too little, too late: in the middle of another global economic storm, there might be little that the government could do to avoid further catastrophe.

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