UK Economy - Has the Government Lost Control?

Last Updated on Wednesday, 25 March 2009 22:40 Wednesday, 25 March 2009 13:50

This week has seen a swathe of economic news in the United Kingdom, and whilst Gordon Brown is swanning off around the world to discuss the contents of the upcoming G-20 meeting, it is becoming increasingly obvious that he and his government are in denial about the depth of the situation and how to solve it. This opinion was strengthened today when Harriet Harman stood in for Brown at Prime Minister's Questions and came a dismal second to an on-form William Hague.

I'll get onto PMQ's in a little while, but the economic indicators and comments from the Governor of the Bank of England surely must put fear into this government. The Governor came out and announced that his position is against any further stimulus, stating that the Government for all intents and purposes, couldn't afford it. On top of that, at "grass roots" level if you like, the two inflation indicators that reflect the UK economy right now showed very bad news for the government, and for the people of the United Kingdom as a whole. The CPI indicator, which take into account the cost of goods and services, including food, rose to over 3%, with food itself rising by over 11%. Essentially, the cost of living overall has risen. The RPI indicator, which shows the economic output of the country as a whole, has dropped to 0%. What this means is that, if anyone was hoping for a pay rise this year, forget it.

So, basically, cost of living goes up, but salaries don't, and the Bank of England think that the Government is overstretched and shouldn't take on any more debt burden in the form of further stimulus, the very thing that the Prime Minister is in the US to sell.

At Prime Minister's Questions, Harriet Harman stood in for Brown, and William Hague stood in for David Cameron. It was evident from the start that Harman had no answers to Hagues questions about the economy and the Bank of England, instead replying with the same old and tired jibes at the Conservative Party. Well, we're not stupid Harriet, we can see right through this pathetic defence and deflection mechanism of blame the Conservatives 20 years ago when you can't answer a simple question!

Just prior to PMQ's, the situation got critically worse. Following the comments from the Governor of the Bank of England, this morning's auction of Gilts, which are government bonds, bascially the goverments debt, failed, and failed badly. It is what is known in the City as a bond strike. Bond specialists are directly attributing this, as I say, to Mervyn Kings comments.

CNBC Coverage of the Gilt Auction Failure