Osborne Autumn Statement 2012 – extra year of austerity | revisions to GDP & Borrowing | UK budget
City Index December 5, 2012 6:08 PM
<p>The Chancellor of the Exchequer, as expected, announced an extra year of austerity as GDP over the next four years was revised lower owing to […]</p>
The Chancellor of the Exchequer, as expected, announced an extra year of austerity as GDP over the next four years was revised lower owing to headwinds from the euro zone and Chinese growth, whilst borrowing forecasts were also revised.
There was not a huge degree of surprises within the autumn Statement in all honesty, with much of the details already well expected due to various projections by independent authorities as well as the Bank of England.
There was a danger that there could have been a much more significant upward revision to borrowing forecasts, but this did not come through, pleasing sterling traders. there is perhaps not enough in the statement that would trigger a dramatic downgrade in the UK’s credit rating by ratings agencies, though there remains the risk that the UK stays on a review path.
Here are the 5 key points of the Autumn Statement:
1. GDP forecasts revised lower
- 2012 revised to -0.1% from 0.8%
- 2013 revised to 1.2% from 2%
- 2014 revised to 2% from 2.7%
- 2016 revised to 2.7%
2. Borrowing forecasts revised higher
- 2012/13 revised to 6.9% of GDP from 7.6%
- 2013/14 revised to 6.1% of GDP from 5.9%
- 2014/15 revised to 5.2% of GDP from 4.3%
3. The UK’s debt as a share of GDP will not start to fall until 2016/2017 (1 extra year)
The UK’s debt to GDP had been expected to fall much earlier than 2016/2017 and had been part of the coalitions mandate for government. This is a defeat for the coalition but in truth is largely down to the fact that the global economy is not growing at the speed originally forecast. Chinese growth is slowing whilst the euro zone (the UK’s major trading partner) is in recession.
4. Spending cuts are extended by an extra year to 207/2018
Another defeat by the government but perhaps considering it was widely expected austerity would have to be ramped up aggressively, this is not a dramatic defeat for the government in the eyes of investors.
5. Will hold a spending review for departmental spending in the first half of 2013
This is not major news but again is an area that needs to be watched for further departmental austerity next year in the 2013 budget.