Leader: Action needed now as economic gloom gathers

ith yet more bleak data on the economy yesterday – this time a 0.7 per cent fall in industrial output and a further fall in house prices – pressure is mounting on the coalition government on several fronts. Yesterday brought a call from 20 senior economists for the scrapping of the 50p top tax rate because it made the UK uncompetitive. While Prime Minister David Cameron insisted this tax on top earners was only temporary, Danny Alexander, Chief Secretary to the Treasury, argued in a press interview that the rate should stay. It is unlikely, given the slippage already evident in the deficit reduction targets, that the top tax rate will be scrapped any time soon. Indeed, should there be any tax relaxation at all, it is more likely to be at the lower end of the earnings scale or through selective reduction in VAT as a means of stimulating consumer demand.

With industrial output now adding to the litany of falling manufacturing and service activity, lower house prices, weak retail sales and falling business and household confidence, pressure is growing for action, if only to halt this decline in confidence from becoming self feeding. The Bank of England’s monetary policy committee meets today. While it is unlikely it will announce another round of quantitative easing, this is looking more likely by the year-end.

Yesterday the Institute of Directors called for “QE2”. The downside economic risks are sufficiently great, it warned, to warrant such action to avoid the risk of a double-dip recession. These risks are undoubtedly growing.