Comment on the Autumn Statement from Ian Stewart, Chief Economist, Deloitte


29-11-2011

“The path of the UK economy over the coming months will be determined more by events in the Euro Area than by today’s Autumn Statement. But, with little room for manoeuvre the Autumn Statement provides reassurance about the direction of the Coalition’s economic strategy.

“First, the Chancellor has reasserted the Coalition’s commitment to deficit reduction. Slower growth means slower progress in cutting the deficit. However, the political consensus within the Coalition for deficit reduction is holding. This will reassure markets that have been unsettled by the political gridlock over deficit reduction in the US and by the huge uncertainties about the ability of Euro Area governments to manage and finance budget deficits.

“Second, the Chancellor has rightly targeted infrastructure investment and the financing of smaller businesses as areas where government action can help bolster prospects for growth. As with all government initiatives, much depends on the detail. The eventual effects of such schemes are highly uncertain. But, given the scale of the risks posed by the Euro debt crisis, the Government is absolutely right to experiment with unconventional policies designed to address specific weaknesses.

“The need to safeguard credibility in fiscal policy gives the Coalition no scope to pump prime the economy with spending increases or tax cuts. With fiscal policy constrained, the heavy lifting in terms of policy stimulus will come from the Bank of England. UK inflation should fall sharply next year, providing some respite to hard pressed consumers. Lower inflation is also likely to pave the way for further Quantitative Easing in 2012.

“Recent events highlight the linkages within the global economy. The Euro debt crisis risks turning the UK’s slow and faltering recovery into a recession. Decisions made in Berlin and Frankfurt over the coming months are likely to have a bigger impact on the UK outlook than those made in 11 Downing Street or Threadneedle Street”.

 

The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

Deloitte LLP