UK goes for stimulus

Britain’s Treasury chief has announced plans to put more money directly into the economy to stimulate lagging growth, just as an international survey suggests the country will slip back into a recession.


The Organization for Economic Cooperation and Development said on Monday that it expects the UK economy to contract in the current quarter and in the first three months of 2012. For all of next year, it forecast UK GDP to grow by just half a per cent.

Britain has struggled to recover from a deep, 18-month recession which ended in the last quarter of 2009, and the turmoil in the eurozone has frustrated hopes of an export-led recovery.

With the outlook worsening and public sector workers preparing for a one-day strike on Wednesday, Treasury chief George Osborne has outlined some of his plans to get more loan funding flowing to small and medium-sized industries and to support employment by increasing investment in infrastructure.

Osborne says he can do that without increasing overall spending, thus keeping the government deficit-cutting drive on track. Since taking power last year, Prime Minister David Cameron’s government has made deficit-cutting a priority; it has blamed the country’s economic problems on the debts run up by the previous Labour Party government.

Osborne will confirm his plans on Tuesday in a speech to the House of Commons, a day before a one-day strike by public sector workers who are angry about changes to their pension plans.

“The OECD is predicting deep recessions in many European countries. That is a challenge for Britain,” Osborne said on Monday. “What we can do with our policies is take Britain safely through this storm.”


Also on Tuesday, the independent Office for Budget Responsibility publishes its latest economic forecast, and it is expected to downgrade expectations for growth to about one per cent for the current year and next year, in line with the latest forecast from the Bank of England. In March, the office had predicted growth of 1.7 per cent this year and 2.5 per cent for 2012.

That means that the government has less money to spend, if it is intent on sticking to its deficit reduction targets.

The government is also under pressure because of rising unemployment, currently at a 15-year high of 8.3 per cent, and inflation still at five per cent. The OECD predicts that UK unemployment will hit nine per cent by the end of next year and stay there through 2013.

Osborne plans to devote another STG5 billion ($A7.9 billion) to improving infrastructure, by diverting funds from other government programs. He aims to raise another STG20 billion for infrastructure by allowing pension funds to invest directly in projects.