Dull Christ­mas in UK

Enterprise - - Economy -

The se­vere cost cut­ting mea­sures in the UK have dimmed the tra­di­tional Christ­mas lights. The of­fi­cial growth fore­casts have in­di­cated that the Bri­tish govern­ment is pre­par­ing for a dou­bledip re­ces­sion, as the Of­fice for Bud­get Re­spon­si­bil­ity ( OBR) has found the debt chal­lenge was “even greater than as­sumed be­cause the boom was even big­ger, the bust even deeper and the ef­fects will last even longer”.

The Bri­tish Govern­ment is en­gaged in a se­ries of mea­sures aimed at pro­mot­ing growth, help­ing strug­gling fam­i­lies and boost­ing busi­ness, also in­clud­ing at­trac­tive freezes in fuel duty and lim­its on rail fare in­creases. But, it would be dif­fi­cult for the govern­ment to avoid a new re­ces­sion if no so­lu­tion is found for the debt storm en­gulf­ing the Eu­ro­zone.

More than 50 per­cent of to­tal UK trade is done with the EU and the UK en­joys ben­e­fits of the Euro­pean sin­gle mar­ket. As part of the mea­sures to stop the Eu­ro­zone cri­sis, EU lead­ers are likely to move to­wards an even closer co­op­er­a­tion on eco­nomic is­sues for their 17 coun­tries.

That could po­ten­tially un­der­mine the sin­gle mar­ket that all the EU mem­bers ben­e­fit from, re­gard­less of whether they use the euro as their currency or not. Also, cer­tain safe­guards are be­ing con­sid­ered against mea­sures that could, in the fu­ture, lead to pro­tec­tion­ism within the Eu­ro­zone, thus harm­ing those EU coun­tries that are not af­fected by the cri­sis.

Ex­perts have still not been able to quan­tify the loss of trade be­tween UK and EU if there is no so­lu­tion found to the cri­sis. But they are equally wor­ried over the nat­u­ral im­pact of less money in EU over its im­por­tant trade part­ner­ship with UK.

A chronic lack of con­fi­dence in the abil­ity of coun­tries to deal with their debts is held re­spon­si­ble for the pro­longed EU cri­sis. The do­mes­tic sce­nario of UK is be­ing viewed as in­creas­ingly dire, as the big­ger than ex­pected fall in prof­its, made HSBC threaten that costly new cap­i­tal rules might force it to leave the UK.

The Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment ( OECD) leaves the onus for boost­ing growth on the Bank of Eng­land, sug­gest­ing the ex­pan­sion of money sup­ply through its quan­ti­ta­tive eas­ing ( QE) pro­gramme for the year 2012. OECD stresses that the to­tal amount of QE should be raised to £ 400 bil­lion.

Within the UK, there is more woe for the pub­lic sec­tor. The OBR has also warned that as many as 600,000 jobs could be lost from the pub­lic sec­tor by 2015- 16, a dra­matic in­crease on its pre­vi­ous es­ti­mate of 400,000. By the fol­low­ing year, the fig­ure could reach 710,000.

The watch­dog also pre­dicts that the struc­tural deficit will not be elim­i­nated un­til 2016- 17, putting it well be­yond the next gen­eral elec­tion in the UK. The OBR es­ti­mates that the govern­ment is now set to bor­row £ 111 bil­lion more than planned over the next five years to fill the gap. It pre­dicts that un­em­ploy­ment will rise from 8.1 per­cent this year to 8.7 per­cent next year.

The UK Govern­ment is con­fi­dent about its com­mit­ment to take the coun­try safely through the re­ces­sion, as it says, “What we of­fer is a govern­ment with a plan to keep in­ter­est rates low, a Govern­ment de­ter­mined to sup­port busi­nesses and jobs, a govern­ment com­mit­ted to take Bri­tain safely through the storm. Lead­er­ship for tough times, that’s what we of­fer.”

Un­der this com­mit­ment, the Bri­tish Govern­ment has an­nounced that there will be a £ 40 bil­lion “credit eas­ing” to get money into small busi­nesses and a £ 5bn fund for in­fra­struc­ture projects. Fam­i­lies will be given a new ‘ right- to­buy’ with dis­counts of up to 50 per­cent on coun­cil houses, with the money raised pay­ing for new af­ford­able homes. En­er­gy­in­ten­sive in­dus­tries will also re­ceive £ 250 mil­lion in sup­port. A fur­ther £ 1.2 bil­lion of in­fra­struc­ture spend­ing will go to schools, in­clud­ing the cre­ation of 100 new free schools, many of which will spe­cial­ize in teach­ing math­e­mat­ics.

There are ef­forts for an ac­tive en­ter­prise pol­icy to re­bal­ance the econ­omy with a hope to take Bri­tain in the right di­rec­tion

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