To an outsider, the budget sounded quite promising – a few tax rises, a few tax cuts. Promises of ‘efficiency savings’ – and the tax on bank bonuses gaining £2bn more than expected. A casual glance at the speech may give the misleading impression the economy is not doing too bad. – Well that is if you missed the statistics about GDP and government borrowing. The twin threat of a weak recovery and higher government borrowing gives any chancellor an unenviable task of trying to reduce borrowing whilst at the same time maintaining the strong rate of growth that is necessary to help reduce the cyclical deficit.
The decision to raise the threshold on stamp duty form £125,000 to £250,000 is good news for those hoping to buy a house. Though given the difficulties in raising a deposit in the new mortgage climate, it is hardly going to cause a stampede into the market. It may just help maintain the recent house price gains.
One thing is fairly certain and that is the prospect of short term increases in interest rates are fairly low. This month, inflation fell back to 3%. Despite volatile factors like rising oil prices, the impact of GDP falling by 6% is to create spare capacity and reduce inflationary pressures.
The government hasn’t wanted to commit to spending cuts. But, there will be need to be some fiscal tightening after the election. With the deflationary impact of higher taxes /lower spending, the emphasis will be on a loose monetary policy to prevent the economic recovery fading away.
More Budget Analysis at Economics and Politics of the Budget at Economics Help
I think the Government needs to concentrate more on creating new jobs and protecting existing jobs.