–Barker: Odd Quarter Of Negative Growth Wouldn’t Be Surprising
–Barker: Hard For Private Sector Growth To Offset Public Sector Cut

LONDON (MNI) – The government’s plans for fiscal tightening may be
too ambitious, against a backdrop of weak growth and with the private
sector unlikely to be strong enough to offset the impact of public
sector spending cuts, former Bank of England Monetary Policy Committee
member Kate Barker has told CNBC.

In the second half of an interview broadcast by CNBC, Barker made
clear she had reservations about the pace of fiscal tightening set out
by the government and its ability to achieve its deficit reduction
targets.

Barker said the fiscal consolidation was coming against a backdrop
where “the people we trade with are also not doing very well” and the
banks are “still sorting themselves out so credit is constrained.”

While fast developing countries like India and China are seeing
robust growth Barker noted these are not major trading partners for the
UK and growth is much more subdued in those place were UK firms do more
business.

“These, I think, are difficult circumstances in which to introduce
a fiscal consolidation,” she said.

She endorsed the government’s broad strategy of setting out
detailed multi-year deficit reduction plans, but questioned the pace and
extent of it.

“You have to have a plan that looks credible, the question is – is
this plan a bit tighter than is necessary to convince the markets and is
it coming in a bit quickly ? I think there is room for debate there,”
she said.

“I’m slightly concerned they are trying to do a bit too much, and
I’m quite sure it is going to be very difficult to achieve (their
deficit reduction aims),” Barker said.

Asked if the UK was going to end in a double dip recession she said
a quarter of negative growth would be unsurprising.

“Growth is always somewhat volatile quarter to quarter, and an odd
quarter of negative growth, perhaps, wouldn’t be surprising given that.
I think the difficulties we have in the economy, and getting them
through, will mean the growth is not likely to be very strong over the
next year or so,” Barker said.

“I find it hard to see the private sector recovery being
sufficiently strong to overcome the public sector slowdown in the short
term,” Barker said.

In previous remarks in the interview Barker was asked about the
likelihood of the MPC sanctioning further quantitative easing.

She said with inflation have held above target for a lengthy period
the circumstance were a lot different from when QE was launched, when
the fear was deflation.

Against this backdrop “the case for QE looks less certain,” Barker
said adding, however, that it was “pretty difficult to predict what they
(the MPC) will do.”

Contrasting present circumstances with those during the financial
crisis Barker said: “The balance of risks has shifted towards inflation
expectations getting embedded rather than deflation.”.

“I don’t think anybody is denying there are some inflation
pressures today. We have got VAT, we have got commodity prices we have
still got the lagged effect of the exchange rate feeding through,” she
said.

“The question for the Bank is always where is inflation going to be
two years down the line? With relatively slow growth prospects and some
spare capacity today, that looks to me like a situation where inflation
could be quite low in two years’ time and (that is) the balance of risks
the Bank is grappling with,” Barker said.

Barker left the MPC at the end of May this year.

–London newsroom 0044 20 7634 1655; email: drobinson@marketnews.com

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