Downing Street backs former chancellor's assessment of economic crisis
Downing Street today backed a warning from the justice secretary and former Tory chancellor Kenneth Clarke that it will take two to three years for the economy to recover from the shock of the banker-induced recession.
Clarke, speaking on the day after figures showed the economy contracted by 0.5% in the final quarter of 2010 ? raising doubts about the wisdom of slashing public spending ? said: "I think we face a difficult two or three years before we get back to normality.
"We mustn't make people think that whoever was in government could say, 'Nasty six months, now it's going to be marvellous.' It's going to take quite a long time before we actually get that out of the system, restore the health of the real economy, do what has to be done to encourage growth among successful new businesses ? small businesses, medium-sized businesses essential to this country.
"People have got to understand it is going to be a long haul. We have got ourselves into a real mess."
His tone contrasted with recent claims by David Cameron that the economy was out of the danger zone. But the prime minister's spokesman broadly endorsed Clarke's sober assessment: "Normally, it takes some years through the [economic] forecast for the economy to return to trend levels. It's certainly the case that there is an output gap at the moment and it will take some time to close."
The latest Office for Budget Responsibility forecasts suggest that the output gap will only close at rate of 0.7 % a year from 2013-14, implying that it will not be fully closed until 2016-17.
At prime minister's questions Ed Miliband said government policy was "hurting" but "not working". Polling for Labour is now showing the electorate are responding to its mantra that the government is cutting too far and too fast. Cameron hit back at Miliband, calling him and the new shadow chancellor, Ed Balls, the "henchmen" of Gordon Brown.
Balls said that the government lacked a strategy for growth and that the governor of the Bank of England and the chancellor needed to "have another look at the facts". Backbench Labour MPs said the governor, Mervyn King, had overstepped the boundaries of political neutrality by insisting the economy was "well placed for a return to sustained, balanced growth".
John Mann, a Labour member of the Treasury select committee, said King was "enthusiastically adopting a fiscal stance which Labour rejects". He said: "Not only does he show little understanding of the lives of struggling homeowners and working people, he has also compromised the Bank of England's independence."
Tristram Hunt also called on King to rethink the way he had defended government policy, which showed "he does not understand the absolute need for the governor to remain politically neutral".
Source: http://www.guardian.co.uk/politics/2011/jan/26/ken-clarke-economy-long-haul
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