AS 2011: Plan A success dependant on eurozone, says F&C's Scott
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F&C UK market strategist Ted Scott says that the Government will have to look at a “Plan B” should the eurozone fail to find a solution to the debt crisis in the near future.
Scott says the eurozone - as well as improved confidence from UK businesses and the consumer - are essential if the current plan to tackle the UK’s fiscal budget is to work.
He says: “The government will be hoping that the Eurozone, as the UK’s largest trading partner, achieves a sustainable resolution to its debt crisis soon so that it will reverse its recent spiral towards seemingly inevitable recession.
“Also, an improvement in confidence could persuade businesses and consumers to save less and spend more to help revive the economy. Without such good fortune, the Chancellor may be forced to think hard about a Plan B to forestall a recession of our own.”
Scott says current plans to tackle the UK’s fiscal deficit leave little room for manoeuvre and that Chancellor George Osborne faces a difficult balancing act between loosening fiscal policy to stave off recession and the fear that the UK’s credit rating will be downgraded.
He says: “On the one hand the threat of recession and rising unemployment calls for a loosening of fiscal policy but, if this were conceded, there would be a risk that the UK’s credit rating would be downgraded, resulting in much higher borrowing costs for the government. The Chancellor has always maintained that the government places a high priority on avoiding such a predicament.
Scott says that Osborne’s plans to tackle slower growth prospects by targeted policies towards small and medium-sized businesses in a bid to restore the movement of credit in the economy will be “limited in the context of a slowing economy with high and rising unemployment”.
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