Budget: growth checkmate

March 21st, 2012

The central test for this Budget is whether it is likely to get growth going again.   It clearly won’t.   The biggest economic problem in Britain today is not the budget deficit, but the lack of aggregate demand which is still shrinking.   If demand were boosted, the deficit would start to tumble down fast.   If on the other hand prolonged austerity continues to eat away at the level of demand (and only 6% of the benefit and expenditure cuts have so far been imposed, with the deadening impact of 94% still to come), then recovery continues to be postponed indefinitely.   Proof that lack of demand is the key missing factor lies in the extraordinary and unprecedented background to this budget, namely that private (non-bank) companies are now sitting on the biggest stash in recent corporate history – an incredible £700bn which is still rising at almost 6% of GDP (£90bn) a year.   They have such utter lack of confidence in the future of the UK economy on its current course that they prefer to sit on a gargantuan pile of cash rather than invest.   Has the budget changed that?   Not one smidgen. (more…)