On Sunday, the Bank of England (BoE) warned that the coronavirus crisis will push the British economy into its deepest recession in 300 years, with output plunging almost 30 percent in the first half of the year. In its monetary policy report, the BoE presented gloomy predictions for the economy, suggesting output would slip by three percent in the first quarter followed by a further 25 percent fall in the second. This would mean an almost 30 percent drop overall in the first half of 2020, the fastest and deepest recession since the “great frost” in 1709.
The economic projections came with a warning to Britain’s banks that if they tried to stem losses by restricting lending, they would make the situation worse.
Andrew Bailey, the BoE governor, told the Financial Times that a failure to lend would create a vicious circle of more bankruptcies and higher losses on loans that would come back to hit the banks themselves.
Speaking to journalists, Mr Bailey said: “The better path for banks is to keep lending . . . we keep banging this message home. If the system [ensures a good supply of loans], we’ll get a better outcome.”
As the crisis is set to deepen, unearthed reports shed light on how the country responded to the 2008/9 financial crisis.
According to a throwback report by The Telegraph, Tory grandee David Cameron, who at the time was leader of the opposition, blamed Prime Minister Gordon Brown for breaking Britain’s economy with policies that now “lie in ruins”.
Twelve years ago, while defending his decision to approve Mr Brown’s rescue package for Britain’s banking sector, Mr Cameron added that he wanted to make “crystal clear” that this was as far as his party’s support would go.
In a speech in the City of London, Mr Cameron said: “This crisis has highlighted just how mistaken Labour’s economic policy has been.”
Accusing the former Prime Minister of spending and borrowing “without restraint”, Mr Cameron said: “The economic assumptions that Gordon Brown made in the last decade now lie in ruins.”
He accused Mr Brown of making disastrous decisions in two key areas: first, encouraging a debt-fuelled bubble in the private sector, the bursting of which had caused the downturn and second, a failure to control public spending which had left Britain unable to deal with the downturn when it struck.
Mr Cameron added: “What’s happened over the last ten years is that Labour has broken our economy – and we must fix it.
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“While Gordon Brown is trying to rescue the banks, we now need a plan to rescue the economy.”
Earlier George Osborne, who at time was Shadow Chancellor, described Britain’s economy as a “burnt wreckage” and said Mr Brown was responsible.
He told BBC Radio 4:”Of course, when the house is on fire, as it was a few days ago when the banking system was near collapse, then we supported the Government.
“But then you are entitled to ask who built the house, who allowed it to catch fire and how are we going to rebuild the house so it never catches fire again.”
Speaking during last week’s Downing Street press conference, Prime Minister Boris Johnson suggested he would not copy the deep public spending cuts imposed by Mr Cameron and his Chancellor Mr Osborne once they got in power after the financial crisis.
He claimed austerity will not be “part of our approach” once the pandemic has subsided.
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When Mr Johnson entered Downing Street with a thumping majority in December, it marked a fundamental change in direction for the Conservative Party.
The Tories have just won the election by promising support for the NHS as well as the billions they planned to borrow to invest in their attempt to “level up” the country.
While the spending promises were enough to make some Tory fiscal hawks uneasy, the scale of the victory meant everyone was happy to stay quiet.
Fast forward a few months and nobody could have predicted the level of borrowing the Government is now undertaking.
This week, the Office for Budget Responsibility said the unprecedented round of state intervention to shield the economy from the impact of coronavirus will cost the Treasury more than £100billion in extra borrowing this year.
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