Andrew Leigh

A constituent at my Charnwood mobile office on Saturday made the suggestion that fiscal and monetary policy are working against one another. Since this isn't the first time I've heard this suggestion, I thought it was worth a short post. In fact, both fiscal and monetary policy are currently working in a contractionary direction. Here's the relevant quote from part 1 of the Mid-Year Fiscal and Economic Outlook, released on 9 November:

Fiscal and monetary policy stimulus is also being withdrawn. As robust growth in private sector activity is taking hold, the fiscal stimulus is being phased out as planned and monetary policy stimulus has been withdrawn. The withdrawal of the fiscal stimulus started to detract from economic growth in the March quarter 2010, and is expected to reduce real GDP growth by 1 percentage point in 2010-11 and ½ of a percentage point in 2011-12.