Recall the theme song New Labour blasted out in 1997 as it savoured its election victory — Things Can Only Get Better? Well that seems to be the promise that Chancellor Alastair Darling offered in his grim annual Budget delievered today. While outlining the full depth of the economic crisis that still might have the UK having to go cap in hand to the IMF, Darling forecast that the British economy would revive next year with a rapid bounce-back, modest at first with a 1.25 percent growth rate and subsequently rising to 3.5 percent in 2011.
Trouble is, no one with any credibility is predicting such growth rates.
The Bank of England’s forecast for 2011 is 2.5 percent. In its latest World Economic Outlook, the IMF saw no growth for the UK on the horizon next year, arguing that the British economy would continue to shrink. The IMF and Darling are at odds also about the forecasts for this year. The Chancellor maintained that output would shrink by 3.5 per cent 2009 – more than doubling his previous forecast. But the world body believes that 2009 will be even harsher for the UK and is forecasting a slump of 4.1 percent.
Those percentage differences may look small but they will have tremendous consequences for how Britain fares in its attempts to borrow the money it needs to cope with the bank bail-outs and increasing government spending.
The markets reacted even before the Chancellor finished delivering the Budget. The price of British government bonds plunged as investors learned the government will be looking to raise 240 billion pounds this year, far more than expected. Most analysts thought the government would be looking for 180 billion pounds. The pound also fell in value on the currency markets.
And taxes…forget 45 percent for high earners. The Chancellor announced a top rate of 50 percent. Belgium looks cheaper, especially with better public health care!