Archive for UK deficit

George splashes the cash but is that an elephant I spy in yonder room?

Posted in economics with tags , , , , on November 29, 2011 by Tom Leatherbarrow

Just a quick take on the Chancellor’s Autumn Statement. How can I do that when he has just begun speaking in the House of Commons you ask? Well, this statement has been so well trailed in the press that we know exactly what Georgie is going to say with the exception of how big the deficit actually is!

We know, for example, that the Chancellor is going to unveil an infrastructure investment plan worth at least £25bn, the lion’s share of which will come from pension funds. We also know that he has plans to unlock £40bn of bank lending for small businesses which the government will underwrite and from somewhere (loose change down the back of the Treasury sofa presumably) we’ve also found a whopping £400m fund to enable housebuilders to build up to 16,000 new homes. Oh, and not only is he going to splash the cash but he is also going to take less into the Treasury coffers by deferring a 3p rise in fuel duty which was due to be introduced in January.

All good news and with money so cheap at the moment, due to historic low interest rates, now is the time that business should be investing, if only companies could be sure that demand will hold up and also gain access to finance.

Which brings me to the crux of the problem. The elephant in the room this afternoon will be the Euro. Friday’s analyst note from Nomura spoke of ‘probable’ rather than ‘possible’ collapse, the question is when?

The nightmare for George is that all these good intentions are blown away and calculations are declared null and void by a monumental Eurozone default which requires a further bailout of the banks. In a week or a month’s time this Autumn Statement could have all the relevance of a little piece of paper waved around by a former Lord Mayor of Birmingham called Neville Chamberlain in 1939!

Advertisements