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Deficit is biggest ever, but King reckons recovery is imminent

London, UK (21/09/2012)

LONDON (Management Today) The governor of the Bank of England says we are on our way to recovery and is relaxed about government borrowing. Meanwhile, the deficit has reached its highest-ever level.


Trying to work out what direction the UK economy is heading in is a holy grail for punters and politicians alike. But this morning brings news that the nation’s budget deficit has widened to the biggest on record. That’s right, folks, the difference between tax receipts and total expenditure was larger in August than it has ever been since records began. Public sector net borrowing for last month was £14.41bn, up from £14.37bn the previous year, according to the ONS.
 
Convenient, therefore, that the governor of the Bank of England Mervyn King last night told Channel 4 that he is ‘relaxed’ about government borrowing. An excellent political carrot for the chancellor George Osborne, Merv’s attitude towards the economy and the budget deficit was verging on louche. He suggested that it wouldn’t be too much of a problem if Osborne missed his debt reduction targets ‘because the world economy is growing more slowly.’ He said such a set of circumstances would make it acceptable, and a slow global economy counts as a half-decent ‘excuse’.
 
He’s probably got a point: if the economy suffers a downturn then there really is very little that politicians can do to make the tax revenues come in. Corporation tax receipts fell by 2.1% in August and benefits payments rose 4.9% - the money to pay for all public sector liabilities has to come from somewhere. Nonetheless, the circumstances are slowly forcing the government into an admission that it will not be able to eliminate the deficit by 2015, as it pledged at the start of this parliament. Dodgy stuff, given how important they made it sound…
 
Still, Merv did say that ‘we are beginning to see a few signs of a slow recovery.’ Recent falls in unemployment figures, a bit of a bump in retail (despite the dampening effect of the Olympics) and steadily falling inflation all point to a slightly healthier deal for the UK. Let’s just hope investors remain chilled out about those government bonds – we don’t want yields going into the stratosphere because Merv has a ‘hunch’…

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