uk still on austerity path

The big news from todays Budget, from an economics perspective, is that UK inflation and unemployment are set to fall while the OBR has revised up its growth forecast. So, reasons to be cheerful?

uk still on austerity path


To recap, Chancellor Osborne said inflation is expected to fall to 1.9% by year end (CPI annual inflation was 3.4% in February), while unemployment will descend from a peak of 8.7% this year.

The prediction for economic expansion may have only risen by 0.1% (from 0.7% to 0.8%) but, hey, at least it’s growth! More promising is the expected 2% growth for 2013, again revised up from 1.8%.

Things may look better this afternoon than they did this morning, but it helps to put things in perspective with the Chancellor’s previous Budgets – it’s less than two years since the drama of his first “emergency” Budget. The economy may have climbed out of its sick bed, but it’s still in the emergency ward.

For Trevor Greetham, director of asset allocation at Fidelity, the UK remains on the austerity path.

“With no new money and official growth forecasts barely changed after last autumn’s big downgrades the Budget hasn’t changed the fundamental picture,” he says.

“With the global growth backdrop improving the UK economy could surprise to the upside and measures to reward those in work at all levels of the income scale could help to boost confidence. However, the UK remains on a path of austerity and growth remains weak.”

Deficit cuts

Government borrowing this year will be £126bn, which is £1bn less than was forecast last year. Overall the Government is expected to borrow £11bn less in total over the next five years and, suggests Quilter’s fixed interest specialist Richard Carter, the Treasury is on track to achieve its goal of eliminating the deficit over the next five years.

Just last week the UK’s AAA rating was put on negative watch by Fitch, after a similar measure was taken by Moody’s last month. However, Carter believes the Government’s efforts have increased the chances of the UK retaining its AAA-rated, safe haven status. 

“As last year showed, the biggest threat to the economy comes from events well beyond their control, particularly in the eurozone. Should growing optimism about the global economy prove misplaced, then the UK’s weak finances will come under renewed scrutiny from the rating agencies.”




Latest Stories