UK Cannot Afford Another Fiscal Rescue

(Telegraph) – IN CALCULATIONS THAT WILL SPARK FURTHER CRITICISM over the state of the public finances, an IMF paper presented to world’s leaders has laid bare how the UK’s indebtedness has left it unable to provide the vital stimulus the economy could need over the next 18 months.

Every other G20 country, apart from the UK and Argentina, has been able to budget for temporary spending increases or tax cuts next year to help drag their economies out of recession, according to the paper presented to a recent G20 meeting in Basel. Even Germany, whose finance minister, Peer Steinbruck, has accused the UK of ‘crass Keynesianism,’ plans to spend a full 2% of its economic output on such measures next year.

The news underlines the fact that, with Standard & Poor’s having warned recently about the perilous state of the UK accounts, Britain has very little leeway to afford new emergency measures. However, sceptics will warn that it also makes it doubly likely that, in the pre-Budget report this autumn, the Chancellor will announce extra measures to keep Britain in line with its G20 counterparts.

The UK entered the recession with the worst structural budget deficit in the Western world, leaving it with little room to borrow in order to lessen the impact on profits and unemployment. Although the IMF last week said it now expects the British economy to return to growth next year, its calculations over the implications of the deficit underline the fact that any recovery will be tepid.

The Organisation for Economic Cooperation and Development has also made grim predictions about the state of Britain’s public finances. It is forecasting the fiscal deficit next year will climb to 14% of GDP — higher than Ireland or Iceland, and the worst in the industrialised world.

… (13/07/2009) – Tories ‘Will Take Years To Fulfill Tax Pledges’

… (14/07/2009) – UK Cost Of Living Falls Most Since 1948

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