UK Fiscal Deficit May Force Austerity Measures

The problem with recoveries after a deep recession is a lot of the good news peters out rather quickly. The easy gains are made early on and then you are left assessing the irreparable damage that was done by the downturn.

And that is the nub of the FT report: grim reading for chancellor George Osborne as he puts the finishing touches to his 19 March budget.

According the FT’s analysis of models by the Office for Budget Responsibility, austerity may have to last a year longer than expected because the government will not be able to rely on economic recovery to eliminate part of the deficit. The FT’s economics editor, Chris Giles, has identified the new black hole by focusing on the difference between the actual deficit (the gap between government expenditure and income such as taxes), which is on course to be around £111bn in 2013-14, and the cyclically adjusted deficit (the gap that is left when the peaks and troughs of the economic cycle are taken out of the equation), due to be £85bn this financial year. Osborne had assumed he would need to target the lower figure.

As Giles says, the gap lays bare the consequences of Britain’s falling productivity. It is a pessimistic outlook for those facing more spending cuts and for governments now having to contemplate tax rises to plug the gap. But the pessimism is entirely warranted if the OBR’s own analysis of productivity is to be believed.

via The Guardian

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.