Thursday, 17 February 2011
Railroad to Growth
Well, as Cilla Black once said ‘surprise, surprise’, the Bank of England has downgraded its growth forecast for the UK.
Having held down the interest rate at 0.5 per cent a 315-year low at its last meeting an interest rate hike is now more than likely. Although they are not predicting a double-dip recession there is a great scepticism amongst economists that this can be avoided. The public expenditure cutbacks will certainly make this more rather than less likely.
The prediction is of a high rate of inflation of 5 per cent by the end of the year . The Bank predicts that the inflation rate will again come down to 2 per cent in 2012. The Governor, like Mr Macawber expects something to turn up.
In King’s case he hopes that what he sees as temporary inflation hikes, these will go down later next year where he can attain his inflation target. Many think that this is a forlorn hope. There are considerable doubts over the timing of how far inflation will drop back.
So whilst interest rates are likely to go up later and even at the current low interest rate the economy is in the doldrums. What is to be done? It is at times like these that John Maynard Keynes said that governments should intervene.
Well, what should be the nature of the intervention, Expenditure on capital projects. Such projects help grow the economy and this is what the economy needs.
That is why Plaid Cymru’s proposals for the rail network in Wales are interesting. What they want is for the rail network in Wales to be electrified.
It is indeed a scandal that, apart from Albania, Wales is the only country in Europe without a mile of electrified track.
Not only do they want a commitment to the electrification of the Great Western mainline, they have the ambition that the Valleys lines should be electrified as well as the North Wales Coast line. They did not quite go the whole hog of asking for a Bullet train to unite North with South.
OK, these are the kind of things that all parties aspire to do just before an election. After all, it was laptops to all schoolchildren that Plaid announced before the last Assembly election.
But the proposals should not be dismissed because it is a pre-election period and Plaid Cymru are clearly preparing their manifesto. It is the very kind of project that any government worth its salt should be pushing in these dire economic times.
No, it is the very kind of capital investment programme that not only does the Welsh economy require but it would help stimulate manufacturing in the UK economy as a whole.
So let Mr Osborne take note.