The right kind of budget

TWO months on from Britain’s vote to leave the European Union, the economy has not plunged. The stockmarket has recovered strongly; retail spending remains solid. Yet it would be foolish to sound the all-clear (see ). Evidence abounds that businesses are holding off on investment as they wait for clarity about Britain’s future relationship with the EU. The fall in the pound will soon put a squeeze on real take-home pay. And, on past form, a burst of export-led growth is unlikely to compensate.Slower growth seems inevitable and the economy could yet fall into recession. The Bank of England has done what it can to prevent this, cutting the base rate of interest to near zero and launching another round of “quantitative easing” (bond-buying), alongside an array of “macroprudential” tools to ensure that lower borrowing costs filter through to firms and individuals. But now the limits of monetary policy are approaching. It is time for fiscal policy to play a bigger role.