Cover of MoneyWeek magazine issue no 494

Out of steam

9 July 2010 / Issue 494

What to buy as the recovery stalls


  • The best play on deep-sea oil
  • The chart that says the market is a screaming 'sell'
  • Saatchi's £25m gift to Britain


Damned if you do

I met London’s mayor, Boris Johnson, at a City lunch the other day. We had a brief chat about the darkening outlook for the economy. His big worry was that the mood in the country would turn very rapidly from people worrying about “Labour overspending” and its consequences, into everyone blam-ing any slump on “Tory cuts”. He’s right to be worried. The austerity brigade will be blamed for the next downturn, regardless.

Why’s that? Because the ‘spend now, cut later’ mob are in an enviable position. You see, it doesn’t matter how much you spend. If your stimulus or your money printing doesn’t work, and the economy heads into recession, then it’s because ‘you didn’t do enough’. So you just have to ‘prime the pump’ harder next time. Whereas if you cut spending, and the economy doesn’t instantly recover, then clearly it’s the spending cuts that have caused the problem.

This is why Dylan Grice at Société Générale is right to be sceptical as to whether our coalition gov-ernment can stick to its guns. People happily talk tough when times don’t seem too bad – or when the austerity applies to others. But when a slowdown, or worse still, a double-dip comes knocking, and house and stock prices tumble again, how easy will it be for David Cameron and the Lib Dems to de-fend their cuts in the face of popular angst?

• Read the full editor’s letter here:
Damned if you do