Back at the beginning of the credit crunch, it was fairly common to read articles and hear comments warning the media was talking the country into a recession.
The BBC’s Robert Peston was, in some quarters, blamed for bringing down Northern Rock single-handedly, while at the same time sucking all the confidence out of the once free-spending British consumer. The idea was that, despite some economic imbalances, the real danger was a crisis of confidence brought about by a story-hungry media. This view ignored the harsh economic realities on the horizon.
As it turns out, there was a massive crisis of confidence, one which is arguably yet to fully resolve itself. But the lack of confidence was based on some real numbers and some very real lending decisions. Even the time of the Lehman crash was viewed by many as a phoney war. However, the fact was the real blood and guts of the crisis was looming.
Now the leaders of the coalition Government stand accused of, in effect, talking up the potential severity of the Budget cuts.
This is a nonsense. Whichever way we look at it, the cuts will be harsh and there will be a wider economic impact on jobs and businesses. The Government is simply focusing minds on the job in hand, aware that as the cuts begin to bite, there will be a thousand special cases all pleading as to why they should be spared the axe. This is before the inevitable strikes and union action as the actual cuts are announced.
For investors, the fundamentals are all too clear. The Bank of England has lowered growth forecasts and admitted there is an outside chance of a return to recession. Employment may have surprised on the upside last week, but most experts agree, however buoyant private sector growth becomes, it cannot, in the short or even medium term, compensate entirely for future public sector cuts.
Meanwhile, inflation is set to remain stubbornly above the 2% target for the foreseeable future and retail confidence appears to be declining.
The proposed cuts in public sector spending are severe, but are pretty much in line with the kind of numbers most experts predicted as the country entered the crisis and was forced to start bailing out the banks.
It may make some people feel better in the short term, but shooting the messenger will not change the facts of the message.
