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Ex-bank chief issues warning on spending
Paul Waugh, Deputy Political Editor27 Oct 2008
FORMER Bank of England deputy governor Sir Howard Davies today said a big government spending splurge could be "dangerous" for the economy.
The London School of Economics director, who served two years as deputy governor before gordon Brown made him the first chairman of the Financial Services authority, today told BBC News 24: "across-the-board increases in public spending, could be dangerous. High government spending and borrowing has put us in a weak position."
He also told BBC Radio 4's Today programme: "I would be nervous about opening the taps [of public spending] full on." Sir Howard added that interest rate cuts "will be more effective. We need to look at one- to two-per-cent cuts over the next couple of months".
Howard archer, chief UK economist at global Insight, said: "It would be much better to cut taxes than boost public spending. Temporarily cutting VaT would have an immediate impact and give much-needed help to consumers."
Manoj Ladwa, senior trader at ETX Capital, said: "The government seems hellbent on spending our way out of recession, but do we have the money? The market doesn't think so. There's a strong case for an interest rate cut."
Ian Scott, global equities analyst at Nomura, said: "It is hard to imagine a more committed policy response than the one we have had, and there are some signs that it is having an impact. Stocks should bottom soon. With inflation absent, rates are set to come down."
David Buik, City commentator at BgC partners, said: "Increasing taxation in a recession is not an option. The consumer and the government have to stop overborrowing - that could prolong the recession, nonetheless it should happen."
Jonathan Loynes, chief European economist at Capital Economics, said: "The government has little choice but to let borrowing rise. But I can't see it making much difference to the economy over the next year or two. Interest rates need to be cut significantly further."
Reader views (1)
I listened to Howard Davies on the Today programme this morning. He said there was a case for bringing forward spending on projects already in the pipeline. I understand this to be what the Government has said it will do. It would be surprising if there were unanimity among economists but I believe there is widespread agreement that this is a sensible policy. Howard Davies did indeed warn against "opening the taps" but this I understand not to be the Government's declared intention.
- Ralph Davis, London, UK, 27/10/2008 16:15
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