What explains this poor performance? The lack of an appropriate policy response to the impaired financial system, both here and globally, is impairing the flow of credit to the real economy, limiting the effectiveness of monetary policy and slowing the necessary deleveraging in the private sector. And this in turns has aggravated the impact of premature austerity, both in the UK and, even more damagingly, in the eurozone. In particular, the very sharp cuts in public investment - down by almost half in the last two years - have clearly had a substantial negative impact.
"That is why the automatic stabilisers and the ability of monetary policy to respond are key parts of the flexibility built in to our plan."
"At this time of rapidly rising debt, the fiscal mandate will be supplemented by a target for public sector net debt as a percentage of GDP to be falling at a fixed date of 2015-16, ensuring that the public finances are restored to a sustainable path. This fiscal mandate, supplemented by the target for debt, will guide fiscal policy decisions over the medium term, ensuring that the Government sets plans consistent with accelerating the reduction in the structural deficit so that debt as a percentage of GDP is restored to a sustainable, downward path."So without the debt target, the central element of the fiscal framework - the deficit reduction target - is no longer credible or coherent. NIESR has always argued that, while the government's fiscal consolidation plan was unnecessarily front-loaded, with the damaging consequences now visible, a medium to long term framework to ensure fiscal sustainability was both necessary and desirable. We need a new one; as the IFS has already proposed, it would be sensible for the government to announce a proper consultation on this topic.