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Business

Financial recovery could be derailed if the screw is tightened too soon

By: KentOnline reporter multimediadesk@thekmgroup.co.uk

Published: 10:39, 11 March 2010

Updated: 10:39, 11 March 2010

David Rea, left, economist with the Royal Bank of Scotland, with Chris Pye, director of NatWest Commercial Banking Centre, Maidstone, at the Marriott Tudor Park, Hotel, Maidstone.

by business editor Trevor Sturgess

Tightening the financial screw too soon could lead to double dip recession, an economist has warned in Kent.

David Rea, economist for the Royal Bank of Scotland and NatWest, said the next Government had to get the timing right.

"If they tighten too soon, it could derail the recovery and we could be back into double-dip recession," he said. "If they tighten too late, we might have a little bit of inflation. Later would be slightly safer for the economy."

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Leading economists are divided on the speed of fiscal tightening which also divides the Government and its Tory opponents.

Mr Rea urged the incoming Government to have a strict timetable of cutting the deficit to avoid the uncertainty that markets deplore.

On interest rates, he forecast the Bank of England base rate will rise from its historic low of 0.5 per cent by the end of the year or early 2011, rising to four per cent by 2012.

Speaking at the Marriott Tudor Park, Bearsted, near Maidstone, Mr Rea said interest rates were incredibly low at the moment. "The only way they can go is up and they are going to go up before the bank rate goes up," he said.

On the lower-than-expected rise in unemployment, Mr Rea, who grew up in Chatham and went to Sir Joseph Williamson's Mathematical School in Rochester, said that was due to flexible working. Businesses had kept hold of people by reducing hours and imposing a wage freeze.

He praised the Government and the Bank of England for the way they had managed the economy during recession, the worst since the Great Depression of the 1930s.

"We should praise the way it's been handled because if it hadn't been, it would have been a lot worse, a lot deeper and another Great Depression. If the Government hadn't stepped in, everything would have fallen off a cliff."

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