UK Deficit Warning from City Economists
Friday, January 8, 2010 7:57
A Financial Times survey of economists warns that Britain is in danger of succumbing to a budgetary crisis this year, with the economy likely to stay in the doldrums until at least the end of 2010.
Asked to name the three biggest risks to the economy, 37 of the 79 economists polled said the UK was threatened by a fiscal crisis that could derail any revival. Most economists thought the economy was recovering and would grow in 2010, but they believed the government and Bank of England were too optimistic about the pace of the rebound. Only 16% thought the economy would be growing at an above average rate of about 2.5% by the end of the year.
The economists said the government must make its plans to improve the public finances more transparent and credible if Britain was to avoid the fiscal crises that have engulfed Greece and Ireland. Should investors refuse to buy government bonds at current high prices, interest rates would rise and the recovery was likely to stall.
But economists were divided over what to do about the threat of a fiscal crisis. Half of those polled backed the Conservatives’ view that action to cut spending and increase taxes was needed urgently in 2010. Half warned that such rapid reduction in borrowing would undermine the recovery.
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