Six months have now passed since Gordon Brown claimed to have "rescued the world". In October 2008, the government, working with the Bank of England and the Financial Services Authority, put together a package of measures to recapitalise the banks and encourage them to lend more. The Financial Times, then and now a cheerleader for the government, praised the package as providing "a global template" and confidently expected its key features to be copied across the industrial world.
Six months is too short a period to arrive at a final verdict, but it is sufficiently long to make an initial assessment of the package's effectiveness. Far from rescuing the world, Brown and his associates caused a sudden economic downturn of extreme severity and wrecked the British banking system. Only in the last few weeks, when a very different policy from last October's bank recapitalisation has been put in place, have signs of improvement emerged.
It is true that the British economy was slowing in spring and summer 2008 after a period of buoyancy in late 2006 and 2007, but there was nothing particularly untoward in the main macroeconomic numbers. The consumer price index was misbehaving, with a surge in energy prices making it certain that in the autumn the official inflation target would be exceeded by more than the permitted one per cent. But it was widely (and correctly) expected that energy prices would stabilise or fall, and that better inflation figures would come through in 2009 without a big recession. The radical deteriorations in demand, output and employment have occurred since last October. Practically every major macroeconomic series shows an abrupt change for the worse shortly after the bank recapitalisation measures. Within a few weeks, the Confederation of British Industry's influential trends survey reported that a net balance of over 40 per cent of UK companies were planning to cut output. This year will see the largest fall in gross domestic product since the early 1980s, with unemployment rising sharply.