View more on these topics

Further cuts needed after initial recovery, says thinktank

The next UK Government must look to cut the budget deficit by an additional 2 per cent of GDP after the recovery, according to the National Institute of Economic and Social Research.

The body, which is regarded as a good indicator of real GDP movement, says GDP will grow by 1 per cent this year, picking up to 2 per cent and 2.2 per cent in 2011 and 2012.

NIESR says public borrowing will fall from 11.5 per cent of GDP this year to 4.7 per cent by 2015. This is above the Treasury’s estimate of 4 per cent, which the think tank says is based on “over-optimistic forecasts for GDP growth and for the buoyancy of tax revenues”.

But NIESR says an additional deficit reduction worth 2 per cent of GDP should be undertaken once a sustained recovery is under way. It says this is necessary to avoid possible debt downgrades. It says this will also create fiscal headroom to deal with a possible future crisis.

It says the extra retrenchment would be best undertaken with cuts in spending and increases in taxes of 1 per cent of GDP each.

In an investor note today, BNP Paribas economist Alan Clarke said there is a 50 per cent chance of a ratings downgrade: “The overriding message is that, unless further action is taken, the debt burden will approach a level that is incompatible with a AAA rating.

“Many, including ourselves, argue that the Government’s growth projections are too optimistic. Standard & Poor’s expects the UK debt-to-GDP ratio to approach 100 per cent. Agencies claim that this is not a magic number but we ask who are the AAA nations with debt/GDP over 100 per cent? There aren’t any.”


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm