Wednesday 23 November 2011

Government Borrowing on track

It is a small story really in today's world of a collapsing Spain joining u-bend bound Italy, Greece and Portugal. But yesterday the Government did announce that despite the economic downturn this year, it is still on track to meet its deficit reduction targets for 2011/12.

Which is quite some achievement, and in fact has only happened because £4 billion of extra taxes have been unexpectedly collected (pity those taxpayers). However, as always, the really interesting bit is the lack of actual, er, cuts. Indeed the usual suspects of Health, Education and Social Care are being restricted to just 1% growth on last year  - but the overall spending is still going up. The rate of increase is being reduced and taxes are coming in to help change the balance, but we are still some way off seeing any actual reductions.

I suppose we should be grateful for small mercies and with inflation at 5% real-terms cuts are being made, if not nominal. We are though a long-way off actual cuts though - who would have thought it if you just watched the BBC and read the papers?

The really good news though is that timing is everything. As the Eurozone collapses with shambolic new apolitical Governments all the rage, UK Gilts are currently trading ever more cheaply as investors flee an area where there is no fiscal or monetary certainty for one that has a plan and is following it through.

Here is something you won't see me write very often; well done George Osborne.


Budgie said...

The new "governments" in Greece, Italy and Spain (Eire as well) are not "apolitical", they are puppets of, and mainly installed by, the EU.

And the eurozone has not collapsed yet. When the markets realise the truth - that a central EU government with fiscal powers is being built on the sly - the ez will start to be treated as one country.

In which case the euro could be with us for many years. Albeit the currency of an undemocratic oligarchy.

CityUnslicker said...

Budgie if they manage that then I take my hat off to them.

A Bund auction failed today - FFS. The sky is falling in on the Bond markets.

The whole EZ is about to get closed by real market participants.

Your move, EU.

Anonymous said...

Hi CU, You're absolutely right. German yields going through the roof as we speak. Belgium also. Merkel has been shown up as a bluffer - seems the market has exposed the Bundesbank as the only buyer of German debt and the market doesn't like finding out that the market is false.

I wouldn't be too hard on the government cuts as yet. It takes time for them to feed through thanks to redundancy payments and other restructuring charges. 250,000 young people not entering the world of work through public sector positions is the cheapest way to make cuts, and this seems to be what is happening.

Budgie said...

CU, I sincerely hope you are right that the eurozone will collapse. It will be ugly as it happens but it will for the best in the long run.

Trust Cameron to get it wrong. He said a strong eurozone is in our (the UK's) interest. The ez has enabled Germany to be mercantilist which is (very) bad for us.

CityUnslicker said...

Budgie - I agree entirely. Soon it seems we will be back to a position of discussing how we control megalomaniac Germany in europe, again.