George Osborne’s austerity Budget will push the UK back into recession unless the Government eases up on spending cuts, billionaire investor George Soros has warned.
The hedge fund manager, most famous in the UK for “breaking the Bank of England” by betting against the then-Tory government remaining in Europe’s Exchange Rate Mechanism in 1992, said Britain’s austerity measures risked killing off economic growth.
“I don’t think they can be implemented without pushing the economy into a recession,” he said at the World Economic Forum in Davos. “My expectation is that it will prove to be unsustainable.”
Mr Soros’s warning comes just one day after shock data from the Office for National Statistics showed the economy contracted by 0.5pc in the final three months of last year, raising fears of a double dip recession.
Concerns about UK growth were also voiced by Nouriel Roubini, professor of economics at New York University also know as Dr Doom. In an earlier session, he said: “Tail risks of outright double dip and outright deflation are lower than last year even if the data in the UK and peripheral eurozone economies seem to suggest that there are risks.”
Mr Soros’s comments are the first really serious challenge George Osborne has had to his economic policy. The International Monetary Fund and credit ratings agencies have thrown their weight behind the austerity budget as the UK attempts to grapple with its vast public debts.
However, there have been rising concerns that the Government does not have a growth strategy. The delayed White Paper on growth, which was due last year, has fuelled those fears.
John Evans, general secretary at the Trade Union Advisory Committee to the Organisation for Economic Co-operation and Development (OECD), told delegates at Davos: “What I don’t see happening and what you need is a medium term strategy to get people into jobs. I see the UK’s austerity as a vicious circle, not a virtuous circle.”
Mr Soros indicated he had some sympathy with Mr Osborne’s plans. “They may have been right in embarking on it,” he said. “The initial reaction has been very positive.” Bond markets have reacted favourable since the June Budget, despite the UK holding the worst deficit in the OECD.
He added that he did not know enough about the UK economy to prescribe a solution, but in discussing the US’s similar debt concerns said more fiscal stimulus was needed. However, he clarified that stimulus measures which target consumption, as Ed Balls has called for, are not effective.
“You need fiscal stimulus, not necessarily for consumption but to improve competitiveness,” he said, indicating that investment in infrastructure is better than tax giveaways. “Too large a part of the stimulus went into consumption, which perpetuated the problem.”
Mr Soros separately announced a $50m investment in the London School of Economics from his think-tank, the Institute for New Economic Thinking, to set up a new programme that will incorporate his theories on reflexivity into economic policy.
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