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Home Economic Fundamentals UK Economic Bank discredits Osborne's call for cuts
Bank discredits Osborne's call for cuts PDF Print E-mail
UK Economic
Written by Will Peters   
Thursday, 25 February 2010 10:37
Analyst at UBS AG says the British Pound's greatest threat is a hasty approach to cutting the budget deficit - a move backed once more by George Osborne.
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George Osborne, the shadow Chancellor has warned that Britain will face "savage and swingeing" public spending cuts and a loss of economic sovereignty unless a start to reducing the record £178bn fiscal deficit is made this year, George Osborne warned last night.

The shadow chancellor warned that financial markets will panic unless a "credible" plan to reduce the deficit is introduced this year.

Osborne pledged to make what the Tories are calling "in-year" public spending cuts by the summer if the party wins the election, in contrast to Labour, which plans to maintain real-term rises until 2011.

The gravity of Osborne's calls therefore lie with a need to prevent a market panic.

But, according to analysts at UBS AG (NYSE:UBS), the British Pound may fall below parity with the Euro and drop to $1.05, the lowest level against the Dollar since the mid-1980s, if the government tackles the country's debt burden too early.

Mansoor Mohi-Uddin, chief currency strategist at UBS in Singapore, said yesterday that, "if the next government was to prematurely curb the fiscal deficit, without the economy reaching a surer footing, the consequences for sterling would be grave."

And then there are the well publicised calls made by the IMF on the dangers of pulling back the economic stimulus:

"In a paper, which will be characterised as a blow for the Conservative party, the IMF said that countries risked sparking a potential double-dip in their economies if they start cutting spending and raising taxes too early," reports The Telegraph.

Last week we heard from 60 of some of the world's most well respected economists who also warned against cutting the budget too early.

In two letters to the Financial Times, they said it could be "positively dangerous" to begin cuts - as the Conservatives are planning - and would risk tipping the economy back into recession.

The signatories to the letters include two Nobel laureates - Joseph Stiglitz and Robert Solow - and five former members of the Bank of England's monetary policy committee, including former deputy governors Sir Andrew Large and Rachel Lomax.

Paul Krugman, another Nobel Laureate, and David Blanchflower, the ex-MPC member credited with exceptional foresight, are two more economists that have also recently rubbished claims that the economic stimulus must be cut back immediately.

The economic case for early cuts to the budget deficit are now being overwhelmingly discredited. Surely it is time for George Osborne and the Conservative Party to readjust their economic policy?


Last Updated ( Thursday, 25 February 2010 10:40 )