"n some recent work for the Institute for Fiscal Studies, Barclays Capital concluded that the outlook for long-term growth – and therefore the already calamitous state of the public finances – is almost certainly worse than the Treasury has been forecasting. According to Barclays, the permanent loss of output in the UK economy may be as much as double what the Treasury has estimated, while the assumed future growth rate of 2.75 per cent is dismissed as unrealistically high. It is only mildly reassuring to know that in terms of delusional thinking, the Treasury is less guilty than many other developed nations, which have all been far too optimistic in their assumptions.
Barclays’ gloomy prognosis chimes with remarks made this week by the Governor of the Bank of England, Mervyn King. His take on the prospects for recovery did not make for pleasant listening. For more than a decade now, he reminded us, Britain and other deficit nations have consumed more than they’ve earned, and borrowed the difference. To heal the resulting wounds, that process needs to go sharply into reverse. "