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(EMAILWIRE.COM, December 27, 2012 ) England, U.K -- The United Kingdom's Prime Minister, George Osborne, gave his Autumn Statement last week, which provoked rather intensive debates regarding England's economic policy and general direction. With a reduction of credit rating now on the horizon, and the recovery from debt taking longer than expected, Fitch, who works as Finance Minister, had to admit that there was likely harder roads ahead.
Discussion blustered when it came to the topic of whether there are enough options at the country's disposal. Some believe it is simply time to 'play the long long gameÂ’ and stick with the plan that is already in place: one of stable but slower-than-average growth.
Osborne's announcements centered on additional 5.5 billion that was to be spent on infrastructure. It is thought by the administration that creating the stronger undercarriage keeps the ship afloat in the long haul. He spoke of an allowance of 6.6 billion in savings that would be put together by way of cutting spending within the government departments, as well as slashing overseas aid and some less popular welfare bills.
The new capital would be utilized in building schools, as well as new scientific investments. Osborne also noted that a cut in corporate tax by 1% would help further the investment of companies to stimulate growth.
Minister Fitch was not impressed by public sector debt staying level from 2015/16, a target he saw as important to sway in his favor.
Also unimpressed by Osborne's speech was the ratings agency, which is likely to weaken the UK's fiscal credibility within the next fiscal year.
Fitch is now forecasting that the UK's gross government debt will peak at 97% of GDP by the 2015 fiscal year.
“I don’t think that a downgrade will have a huge effect on the real economy,” Said Samuel Tombs, UK economist for macroeconomic research company Capital Economics.
“When we have seen other countries receive a downgrade we have not really seen a negative reaction from the markets. The United States and France have both suffered downgrades, but the markets looked for a response from the government over its austerity methods and ways to harness growth.”
He explained: “There are some people that believe that due to the fact that we have low interest rates that we should borrow more. The chancellor probably has had more room to spend that may not have caused a ripple in the markets. The coalition are unlikely to reverse their cuts, and some kind of austerity plan has to remain to support the economy.”
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