Economy: "This is a Kill or Cure Budget", says KPMG
By Andrew Smith, chief economist, KPMG in the UK,
"This is very much a kill or cure budget. The Chancellor announced the toughest fiscal squeeze since the war, aimed at correcting the current structural deficit in the public finances - the part which will not go away even when the economy is back firing on all cylinders - within the lifetime of the parliament. The new measures come on top of tax increases and spending cuts already in the pipeline, in total amounting to 6 percent of GDP over the next five years."But there is no certainty that private demand will bounce back to fill the gap left by these cuts. Sluggish personal income growth and inevitable public sector job cuts will constrain consumption at home, while weak growth in Europe will also limit export potential. With overall demand at best lacklustre, businesses may also be reluctant to invest.
"So the hoped for rebalancing of the economy towards exports and investment still looks some way off. Against this background, monetary policy will have to stay loose to compensate for the tight fiscal stance for there to be any chance of meeting the official GDP growth forecasts of 1 ¼ percent this year, 2 ¼ percent in 2011 and around 2 ¾ percent a year thereafter."
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The Chancellor of the Exchequer, George Osborne MP, presented his emergency Budget statement on 22 June 2010. For exclusive KPMG commentary and analysis see www.kpmg.co.uk/budget.