As problems build up in the Euro-zone with mounting worries about Greece’s ability to avoid defaulting, reports of slow downs and slips abound, including, ominously, UK manufacturing. This is not good news. It comes in part because we have yet to develop our markets in the new expanding economies and are more dependent on Europe and the US where political/fiscal uncertainties are inhibiting general growth.
In America the problems of an interventionist Democrat in the White House and a Republican, small government, no spend, majority in the House of Representatives are beginning to loom. The Republicans want greater cuts in exchange for raising the debt ceiling; their attitude is similar to our own monetarist driven Coalition. Obama is nearer Labour, anathema to the American Right. If they do not broker an agreement as the debt ceiling stands, America faces defaulting in early August. This appears unthinkable and one assumes that compromise will prevail, yet the mere thought of it is enough to give everyone the jitters. If there is a valid criticism of the Obama Treasury, it is that whilst spending programmes have been designed to release the labour pool into infrastructure renewal, this all has to be done on even more borrowed money. There is not enough re-modelling of the economy beneath the headlines, which include the news that home prices are in a double dip.
Britain is economically so intertwined with the US and Europe that trouble in either is trouble for us, but trouble in both is trouble indeed. Moreover the state of our economy, flat lining (almost) and indebted, is not one to absorb the problems of others. What happens in the months ahead in any direction are now hard to predict. Forecasters, with the best of intentions, are once more at risk of being made fools. Lights will need to burn late in the Treasury, the OBR, the MPC and the FPC.