AN OUTSIDE VIEW

European Union finance ministers have voted to condemn Britain for flagrant breach of the Maastricht spending rules, irked that the UK government has not even tried to keep its budget deficit below the treaty limit of 3pc of national income. By its own admission, Labour will need to borrow at least 3.2pc of GDP this year, even if the economy holds up well. Brussels described this as "prima facie evidence of a planned excessive deficit". It warned that UK public finances were no longer on a sustainable course after the spending blitz of recent years. Yesterday's vote is the first time the EU has launched disciplinary action against a big Western state under the revamped Growth and Stability Pact. The UK now has the worst fiscal profile of any developed country in the North Atlantic sphere. The European Commission expects the UK's public debt to rise from 43.2pc of GDP last year to 47.5pc by the end of next year. The ritual of naming and shaming at EU meetings is likely...

The Monetary Policy Committee's decision to drop the interest rate to 5% will give another shove to inflation, as the £ drops further in the foreign exchange markets. The £ stood at over €1.40 less than a year ago. Now it is down to €1.25 in a slide which has mostly occurred in the past four months and looks set to continue. It is a desperate attempt to keep the property bubble inflated, in order to keep the credit-fuelled consumer boom running. As the most, it will put off the collapse for a little while, but the decision means that the UK will probably suffer 1970s levels in addition to the inevitable recession. The immorality of the policy is that the burden will now be pushed onto the thrifty and prudent people who had no part in bringing about this state of affairs and gained nothing from it. A few firms will benefit from the export opportunities but the main effect will be inflationary, so expect industrial trouble as people find the real value of their pay packets shrinking....

I wrote about this a month ago in my blog What's the matter with the experts who have only just noticed?

Now the pound is down to the point that one Euro is worth 75 pence, and there is no sign of any respite. This is its lowest value against European currencies since 1996 and its lowest ever against the Euro. Aggravated by higher fuel prices and consequently higher transport costs, it will quickly feed through into higher prices of food and goods that come from Europe, including staples such as vegetables. What next? The Bank of England's Monetary Policy Committee (MPC) has decided not to reduce interest rates again this month, which may check the fall, but the pound remains vulnerable to political pressure and the MPC would have to hold firm or even raise interest rates for several months running if confidence in the UK currency is to be restored. In the meantime, the lower value against the Euro, together with higher fuel prices, will quickly lead to higher prices of food and other commodities in the shops. This will put pressure on wages, and could lead to industrial unrest. It ...