Perspective News

The Autumn Statement from chancellor of the Exchequer George Osborne provided little cheer for either businesses or individuals, going so far as to sound a warning that the UK’s “debt challenge is even greater than we thought”. The UK government will have to borrow more money and accelerate its programme of spending cuts. Overall government borrowing for 2011/12 is expected to overshoot the chancellor’s previous target to reach £127bn. Although debt is expected to come down eventually, Osborne admitted the decline would not be as quick as the government had wished.

Borrowing is now forecast to decline to £120bn during 2012/13, to £100bn during 2013/14 and eventually to £24bn by 2016/17. The UK’s debt-to-GDP ratio is now expected to peak at 78% in 2014/15, compared with previous expectations of a peak of 70.9% in 2013/14. Expectations for economic expansion were drastically scaled back. The Office for Budget Responsibility (OBR) cut its forecast for UK economic growth in 2011 from 1.7% to 0.9%, and slashed its forecast for 2012 from 2.5% to 0.7%.

The outlook for jobs has deteriorated and the OBR expects the rate of unemployment to peak at 8.7% in 2012, compared with earlier expectations of a peak of 8.2% in 2011. The number of public sector jobs to be lost by 2017 has soared from 400,000 to 710.000 and public sector pay rises will be capped at 1% for two years once the current pay freeze has ended. Elsewhere, on a slightly brighter note, the controversial 3p-per-litre rise in fuel duty that was scheduled to take effect in January 2012 has been abandoned and the rise scheduled for August 2012 has been cut from 5p to 3p.

Looking to the immediate future, the OBR believes the UK economy will narrowly avoid falling back into recession. The economy is expected to contract by 0.1% during the final three months of 2011, and then to register growth of 0.1% in the first quarter of 2012. Nevertheless, the OBR warned that the UK has a one-in-three chance of falling into recession next year.

In particular, it believes the eurozone poses a substantial risk to the UK’s economic growth, commenting, “The probability of a much worse outcome is greater than the probability of a much better one.” For his part, the Chancellor warned: “If the rest of Europe heads into recession it may prove hard to avoid one here in the UK.”

The contents of this article should not be construed as advice and do not necessarily reflect our views. Independent Financial Advice should always be attained in order to assess your own individual circumstances.