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Uk Spending Cuts Could Be Hard To Deliver, Ifs Says

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The government's planned spending cuts could be "formidably hard to deliver", according to the independent think tank the Institute for Fiscal Studies (IFS).

The warning comes in its Green Budget, which aims to assess the government's position ahead of its own Budget.

It predicted government borrowing would be less than the Office for Budget Responsibility (OBR) had forecast.

But it urged the chancellor to "resist the temptation to engage in any significant net giveaway".

It said to do so would risk fuelling inflation, which in turn could trigger higher interest rates which could stymie economic growth.

Instead, the IFS Green Budget said the government should "bank" the money to help deal with risks further down the line.

The BBC's economics editor, Stephanie Flanders said the IFS report was broadly an endorsement of the government's plans - but with "gloomy caveats".

The austerity cuts of the govt where spending yoy goes up.

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For example, they think there is a risk that consumption will disappoint this year - as households respond to declining real pay rates and, amongst other things, falling house prices. And they don't expect companies to rush to the rescue, with big increases in investment, even though - as I have mentioned many times here - many companies are sitting on plenty of cash. Most troubling, they worry that companies could start shedding labour in a serious way in 2011 and 2012, to raise productivity after several years when it has not risen at all.

All or any of these negative shocks could throw the government's borrowing numbers off track - with the Bank of England not necessarily able to respond. In other words - Plan A could be even worse than we think. But there may not be scope for a Plan B. They think there's a roughly 1 in 5 chance of a double dip recession in 2011.

However, the report gives the lie to the suggestion that the government's cuts are similar to the consolidation plans being undertaken by other countries. Out of 29 industrial countries, only Greece is planning a sharper decline in structural borrowing between 2010 and 2015. And only Ireland and Iceland are planning a larger reduction over this period in public spending as a share of GDP.

Update 1140: There is a tension in the IFS report on the vexed question of a Plan B. (Some would say there's the same tension inside the Treasury.)

As the quote I referred to earlier suggests, the IFS and their co-authors believe strongly that the chancellor should not change the fiscal strategy as a result of the recent disappointing growth numbers.

But, in the press conference launching the report, the IFS deputy director, Carl Emmerson, has now made clear that the IFS does think the chancellor needs a Plan B - and he needs to tell us all about it. He needs to explain clearly what he would do, if the economic outlook turned out to be worse than expected.

The folks at IFS and Barclays Wealth do not think that this would be damaging to market confidence - or the chancellor's standing in financial markets. Possibly it would help.

Good to see Barclays helping out.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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