Journal Column – 2nd February 2011

Last week saw the announcement of the UK’s Growth figures. The figures once again indicate the inherent risks of the reduction in public expenditure outlined by the Westminster Government. The sort of fiscal masochism proposed over the course of the Spending Review period (2011-15) will inevitably undermine what is an extremely fragile recovery. With family budgets squeezed by unemployment or real term pay cuts, rising prices in every day goods and our main trading partners facing similar problems, it’s difficult to see where the sustained consumer and export led growth the Westminster Government is depending upon will come from.

The reality is that the Westminster Government has embarked on a major economic gamble. With inflation increasingly a problem, the Bank of England will have little wriggle room to use monetary policy to soothe the damaging consequences of its fiscal policy. Indeed, the Bank of England could well be forced to tighten policy sooner than expected and increase interest rates.

The UK economy as a whole is therefore facing several headwinds, and economies such as ours in Wales are likely to suffer disproportionally as a result of the Westminster’s policies.
In the medium term we are likely to see growth concentrated in the South East of England, with a continuation of the damaging legacy of individual and regional wealth polarisation witnessed under the last Labour UK Government.

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