IFS say Labour’s policy would mean higher interest rates

From the start of the financial crisis, the Conservatives have argued that when a country¹s finances are in a mess, the best way to manage demand is through monetary activism and fiscal responsibility.

Going into this crisis, Britain¹s finances were indeed in a mess. We had the biggest structural deficit among major developed economies (according to the IMF, OECD, oh, and Alistair Darling). To claim there was no structural deficit is to oppose the truth.

The principles of monetary activism and fiscal responsibility underpin the approach to the recovery too. By dealing with the fiscal mess, we can keep interest rates lower for longer, and avoid the sorts of financial meltdown seen in Ireland and elsewhere.

Today, as we start to clear up that mess, the IFS has strongly endorsed that approach, and demolished the Balls argument. They say:

‘Any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor confidence.’