Andrew Sentance, the Bank of England’s super-hawk, will have one final chance this week to win over fellow policymakers to his cause.
Unfortunately, the news just isn’t going his way. The first take of Britain’s official GDP figures, released last Wednesday, showed the economy flat-lining (or, “on a plateau,” as the Office for National Statistics more diplomatically put it), with the 0.5 percent growth rate merely taking us back to where we were in the autumn. High street sales are soggy and retailers are squealing about lost margins as they struggle to avoid passing on eye-watering cost increases to shoppers. And so far at least, there’s absolutely no sign of wage growth running out of control. Not surprisingly, consumer confidence has slumped to levels last seen during the recession.
Instead of stoking up an uncontrollable wage-price-spiral, inflation is eating into profit margins, gobbling up the spending power of already pressurized consumers and making businesses even more nervous about making firm investment plans. And that’s before the bulk of the government’s fiscal squeeze has fed through to jobs and public service cuts on the ground.
Backed by the raucous voices of hawks in the City, London’s financial district, Sentance has become increasingly strident in his insistence that the bank has been “selling England by the pound” (quoting 1970s rock band Genesis).
Will fellow hawks Spencer Dale and Martin Weale — who admittedly have only demanded a quarter-point rate rise, instead of the half demanded by Sentance — continue the campaign when he departs? If inflation stages another unexpected decline and the economy continues to weaken, they may admit instead that it’s time for a full stop.
The US’ recovery is petering out, the UK economy is flatlining and euroland’s crisis rolls on. There’s scant cause for optimism in the Old World. However, outside the credit-crunched post-industrial countries, the next few years — and decades — could see the blossoming of a whole new group of super-economies.
We all know about the extraordinary rise of China and India; but new research by Willem Buiter, former Bank of England Monetary Policy Committee member and now chief economist at Citigroup, says that this year is an auspicious moment for the emergence of new economic powers.
In fact, unlikely as it may seem, Buiter and his colleagues believe the period between now and 2040 could turn out to be one of the best in the whole of human history for spreading the benefits of economic growth.
The fastest-growing economies during this supercharged period, they claim, will include China and India; but also, among others, Mongolia — currently better known for kilometers of featureless steppe than for economic dynamism — Indonesia, Nigeria, Bangladesh and Vietnam.
And what will bring about this new economic miracle? It’s a tale of the mighty power of catch-up: Unlike the days of the industrial revolution, when radical new technology — steam-powered mills, trains, threshing machines — transformed people’s lives, these countries could achieve extraordinary growth largely by adopting the pre-existing methods, inventions and sometimes institutions of richer rivals.
Using the peerless research of Angus Maddison on the economic history of mankind, Buiter reminds us that for the first millennium or so, GDP growth was almost certainly negligible. Nothing changed. Peasant farmers scratched a living — just — from their little patch of land, year after year, century after century.