Browns Economic Statement

I just have read in the Sunday Times that Gordon Brown has said that the recession will be over by the end of the year. This despite the articles admission that economists in Downing Street were “staggered” by Fridays figures showing that the country is still in the grip of recession.

The article also adds:

Mr Brown was clearly counting on nothing happening in the next three months that will suddenly put the recovery off the rails, but it was unusual for the usually cautious Prime Minister to be so definitive.

I think it is a bold move to make such an assurance, especially considering it seems to be an unprompted remark. It strikes me that this is a big gamble and Brown is pinning perhaps all of his electoral hopes on Christmas spending bringing the UK economy back to growth. Problem is, there is a good chance this might not happen. Yes, confidence is needed but the political outlook for Gordon Brown in 2010 was already looking dire, this could be the final nail for him and the Labour Party.

On the high street retailers will be hopeful for a good Christmas, but I have my doubts that they will be overly stocked after a tough year, so the prospect of attractive cut price sales before the end of the year are not as likely to materialise this year to entice people into the shops.  Last year, many retaillers felt the need to cut early, lessons will have been learned. Furthermore, there is no appetite for taking on additional credit to fund an extravagant Christmas, so sales will largely be funded by disposable income. Many people, including myself have faced a reduction in income in the last 18 months and have faced increases in cost of living thanks to the crunch, leaving less disposable income available. I don’t think I am alone when I say there will be a strict budget applied this Christmas in our house.

I am not sure that we will see too much end of year budget burning from the private sector businesses either, as finance directors will be looking to go into 2010 with as much cash in hand as possible so as to be as well positioned as possible after what has generally been a bad year all round.  Public Sector budgets tend to run to end of Q1 so unless ordered to spend, I would not be confident that there will be additional expenditure there either.

All round, the outlook for people and business is that they face even more price rises in 2010, which is easy to point to with the VAT rate scheduled to rise on 1st Jan. I think that in Gordon Browns position he should have aired on the side of caution.

If Browns statement is shown to be wrong, Brown will be punished at the polls if he tries to use his economic record for electoral gain, because it just isn’t as great as he thinks it is. The opposition parties will be able to deride him, even more so than they potentially already can. Even if I am wrong, and there is signs of growth by January that does not mean the voters will give Brown the credit he will feel he deserves. Given that, either I have a very different assessment of where the country is to 10 Downing Street and this is very likely to prove to be ammunition for Cameron & Co or Gordon Brown knows something we don’t.

My verdict.  I think this is an act that shows there is some desperation in Downing Street and that it will come back to haunt him.