openEconomy

Phew! At least there's a Plan B

Tony Curzon Price
Tony Curzon Price
14 December 2010

The FT's Philip Stephens brings the good news that the Treasury has a few heads above sand-level:

A confidential paper circulating in Downing Street suggests the government should consider in advance if not a fully worked up “Plan B” then at least a series of possible stimulus measures which could be implemented were the economy to stall. Written by Sir Gus O’Donnell, the Whitehall economist-turned cabinet secretary, the paper underlines the uncertainty surrounding official forecasts for growth. The Treasury, it suggests, should examine in detail the policy tools that would be available in the event of a sharp downturn.

The first line of stimulus in such circumstances would probably be more quantitative easing by the Bank. But the paper also suggests the Bank could, in effect, lend directly to business through buying commercial as well as government bonds. For its part, the government might also put in place plans to accelerate spending in infrastructure projects. Tax cuts would be another option, though the politics of that might be tricky given next month’s VAT increase.

Who will replace Osborne to lead Plan B if it is needed? Cable?

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