ONE of Scotland’s senior economists has warned that the government’s austerity cuts are doing more harm than good for the UK’s long-term economic prospects.
Outlining the challenges posed by the eurozone crisis, Donald MacRae, chief economist of Lloyds Banking Group Scotland, noted that the UK could currently borrow money on the bond markets at a cost of 1.8 per cent, substantially less than that available to many stressed European governments.
“By the way, look at that UK rate of 1.8 per cent,” MacRae told his breakfast audience in Glasgow. “Doesn’t it make sense for the government to borrow at that rate to invest in roads and infrastructure to stimulate activity?”
His comments came just two days after Prime Minister David Cameron vowed to stick to his fiscal guns despite a deteriorating outlook highlighted by the latest growth forecasts from the International Monetary Fund.
Like the IMF and others, MacRae is concerned that measures to cut the deficit are failing in the face of falling receipts from corporate taxpayers. Meanwhile, growth has stagnated as businesses continue reining in spending amid the economic uncertainty.
Speaking afterwards, MacRae said that, although there had been some progress in working through the downturn, it would take years to fully repair damaged financial systems. In the meantime, without business investment, stimulus is required from elsewhere.
“My personal view is that we need an increase in capital investment projects, both in Scotland and the UK,” he said.
“The risk of no growth is greater than the risk of delaying when we come back into budgetary balance.”
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Wednesday 22 May 2013
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