LEADING economists last night told City A.M. that the new government might not be in a strong enough position to take the decisions necessary to stabilise the economy while also bringing down the budget deficit.
“I don’t think the new government will be stable enough,” said Lord Skidelsky, a leading Keynesian economist who believes the budget deficit should not be reduced this year but only after a period of growth.
“There are basic divergences between the LibDems and the Conservatives. I do not believe that leopards change their spots,” he said.
“I think the Conservatives will run into all kinds of trouble if they go for a bold plan to reduce the deficit as quickly as possible. I don’t think you would find it easy to get enough LibDem MPs to support that and they would be very uneasy if Clegg and Cable accept the Conservative plans.”
Meanwhile, Citigroup’s chief UK economist Michael Saunders warned that a coalition government is likely to remain in pre-election mode, reluctant to implement painful fiscal consolidation in order to move on to a quick second election. Saunders argues that successful coalitions for fiscal sustainability in other countries were preceded by interest rate hikes and consensus for urgent fiscal action.