Shock GDP drop sends Sterling into tailspin (brit's ain't happy)

Shock GDP drop sends Sterling into tailspin
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Published: 25 April, 2012, 17:18
Protestors from the Socialist Workers Party demonstrate against the financial crisis outside the Bank of England in London, on October 10, 2008. (AFP Photo / Geoff Caddick)

Protestors from the Socialist Workers Party demonstrate against the financial crisis outside the Bank of England in London, on October 10, 2008. (AFP Photo / Geoff Caddick)

The UK economy is back in recession, its first double-dip recession since the 1970s, following a surprise 0.2% drop in GDP in the first quarter of 2012. Analysts had anticipated modest growth of 0.1-0.2%.

­The pound dropped following the news as markets expect that the Bank of England will be forced to resume its quantitative easing programme, having earlier hinted that it would no longer be necessary.

The news could not come at a worse time for the British Government and in particular the Chancellor of the Exchequer, George Osborne who has stuck rigidly to an austerity programme, claiming all along that it is the best medicine for the ailing British economy. The economic data would suggest otherwise, however, and plays into the hands of the Labour party, which has maintained that the Conservative party’s swingeing cuts have been squeezing the life out of the economy and inhibiting growth.

Erik Britton of Fathom Consulting pointed out that the ‘severe headwinds in European countries which seem to have a death wish, and are in a spiral of decline’ are having an impact on the UK economy. In addition, domestic demand has been dampened by job insecurity, stagnant wages and stubborn levels of inflation. Even if analysts had been correct in their predictions of modest growth, the longer term outlook for the UK economy would still be negative, characterised by high levels of debt, low growth and weak consumer demand.

Until this debt overhang is reduced to a more sustainable level, there is unlikely to be any positive economic news for the Prime Minister David Cameron or his government.

sounds like the US......

Let them get taxed: UK controversial budget hits pensions, cars and lunches
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Published: 22 March, 2012, 16:42
Britain's Chancellor of the Exchequer George Osborne holds the traditional red briefcase as he leaves for the Houses of Parliament from his official residence in Downing Street in central London March 21, 2012 (Reuters / Suzanne Plunkett)

Britain's Chancellor of the Exchequer George Osborne holds the traditional red briefcase as he leaves for the Houses of Parliament from his official residence in Downing Street in central London March 21, 2012 (Reuters / Suzanne Plunkett)

TAGS: UK, Budget, Prices, Global economy

The UK Treasury plans to “earn the way out” of the economic troubles with the new tax rules included in the 2012 Budget. The middle-class and pensioners are the first pay the price for economic recovery.

­With new tax regulations the UK Government plans to achieve 2% economy growth in 2013 and to cut borrowing to 126 billion from a forecast 127 billion.

The Treasury announced, higher income tax allowances for people over-65 that were introduced in 1925 by then Chancellor Winston Churchill will be frozen or cut. It means British pensioners with an income over £10,500 a year will pay standard income tax from 2013. The so called ‘granny tax’ will cost 4.4 million pensioners about 3.5 billion pounds over the next five years with every retiree paying as much as £259 more income tax than they otherwise would have.

The new rules are introduced to simplify the tax system, according to the Government. But pensioners’ organizations opposed the decision pointing out things will get worse for 65-overs who already faced interest rates on their savings cut three years ago.

Also more than 600,000 workers will be considered higher rate taxpayers from 2013 as the threshold will be cut to £41,450 a year from current £42,475 a year.

Meanwhile the budget plans weren’t bad news for everyone as the top rate of income tax will be cut from 50 pence in the pound to 45 pence next year. It means rich people earning over 150,000 pounds a year will save about 10,000 pounds. The Chancellor explained, the move will cost only 100 million pounds and would help to get 2.9 billion pounds of taxes from people who have been avoiding tax when it was 50 pence.

Critics have already called the Budget pro-rich with top earners benefiting from lower taxes and the middle-class struggling from rising prices and taxes.

The Chancellor George Osborne announced that fixed rate fuel duty will rise by 3.02 pence a litre to 60.97 pence with VAT adding another 60 pence to a price per litre. Petrol price has already hit a record £1.55 or $2.46 per litre.

“It is a very convenient tax for government which is very difficult to avoid. One of the impacts is on labour mobility. On how easy it is for people to travel to work or to get a new one that might involve some travelling distance from their home?” says Dr Richard Wellings from Institute of Economic Affairs.

Even a take away lunch will be more costly as the Treasury announced 20% VAT for all hot take away food bought from bakeries and supermarkets. The decision will raise an extra £125 million per year.

Another controversial thing was issuing 100-year bonds that allow borrowing in order to return them in 100 years or even later. It makes further generations pay for their grandparents’ debts.

Laura Smith has talked to small businessmen and people in the street about how the new budget will affect their everyday life.