Government Begins to Focus on Growth Rather than Austerity

Last month’s statistics indicate that the UK recession is considerably worse than expected. The construction industry in particular, has slowed down significantly. The continued recession in the UK combined with the uncertainty over the Eurozone crisis has led to a government rethink. Both David Cameron and EU officials are beginning to place emphasis on “growth” rather than “austerity” which is simply not working. 

However, the proposals to generate growth are less clear. In our view, the economy requires real growth in order to recover which must be substantiated by increased output and employment. To date, “growth” has taken place in the form of issuing more debt in order to raise government spending in both the UK and Europe. In February 2012, the ECB provided cheap loans to the tune of 530 Billion Euros to European Banks in order to stimulate the economy. This has not generated the expected levels of growth as the Banks have effectively used the cheap finance in order to cover their losses in the Eurozone and have not reinvested their capital in the form of loans to EU businesses. 

Despite failing to promote growth in the UK, the UK government and the Bank of England have managed the economy reasonably well. Emphasis on cutting the deficit and controlling inflation is paramount and has helped to restore confidence in the UK as the place to do business. The UK has retained its AAA credit rating and continues to be seen as a stable economy for overseas investors, particularly those looking to withdraw their funds from the Eurozone. The next step is growth, because at present, there is a common feeling that the UK economy is going nowhere fast.