Cable wrong to focus on bank lending, says IPPR

Business Secretary Vince Cable is wrong to suggest that increasing bank lending is the top priority in looking to avoid a double dip recession, according to the Institute for Public Policy Research.

In an interview with The Sunday Times, Cable said making banks lend again was “the top priority” as this would increase growth and boost employment.

IPPR chief economist Tony Dolphin says the problem is far larger than banks not lending enough.

He says: “Cable’s prescription is based on a completely wrong diagnosis of the current economic problem. It is clear there has been a significant loss of economic momentum not just in the UK, but globally. This suggests global causes – not UK banks lending practices – are at work.

“The withdrawal of fiscal stimulus – either actually in UK as with the VAT hike and cuts in public spending, or in prospect as in the US is taking demand out of economies. It is likely, therefore, that the banks are right when they say the problem is not their willingness to lend, but the willingness of households and companies to borrow. What is required are measures to support demand.”

This morning Treasury economic secretary Justine Greening told Sky News the Government will take steps to stimulate growth in the Autumn.

Dolphin says that cutting VAT from its current rate of 20 per cent along with further quantitative easing from the Bank of England could help stimulate the economy.

The Bank of England is expected to downgrade its growth forecasts for the UK from 1.8 per cent to 1.3 per cent this Wednesday. It comes after Office of Budget Responsibility chairman Robert Chote suggested last week that growth for 2011 could fail to hit the OBR’s March projection of 1.7 per cent. That figure was itself cut from 2.1 per cent in November.