The Chancellor Survives a Difficult Month
20th May 2013
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The Government’s chosen economic course, Plan A for Austerity, has not been receiving much good publicity of late. An economics paper by two Harvard economists that was seen as academic backing for austerity was found to contain significant errors.

At much the same time, the International Monetary Fund’s chief economist suggested that it may be time for the UK to relax its tight budgetary plans. On cue, unemployment figures rose by 70,000, taking the level to 7.9% of the labour force. Just to add to the Chancellor’s woes, a second credit-rating agency, Moody’s, stripped the UK of its AAA rating.

Towards the end of the month Mr Osborne had two pieces of good news.

The initial estimate of government borrowing figure for 2012/13 came in at £300 million below the 2011/12 figure. This allows Mr Osborne to say he is still cutting the deficit year by year, although a reduction of just 0.25% could well be revised away in the future.

The Office for National Statistics (ONS) announced that in the first quarter of 2013 the UK economy grew by 0.3%, reversing the 0.3% decline in the final quarter of last year. As a result, Mr Osborne avoided the much talked-about triple dip recession that had been forecast in some quarters. 

The falling borrowing and positive economic growth figures do not yet mean the UK economy has returned to health. The government deficit is stuck at close to 8% of GDP – it will be virtually unchanged again in 2013/14 – and in the words of the ONS the economy “has been broadly flat over the last 18 months.”

The UK’s economic peak was five years ago and the latest data show that we are still 2.6% below that level today.

The stock market took this all in its stride, and was little changed over April. Whether that reflects optimism about UK plc’s future or the impact of loose global monetary policy is open to debate.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance. 

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances

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