"The UK public sector net debt is forecast to worsen from 71.8% of GDP in 2011-12 to a peak of 85.6% of GDP in 2016-17 according to the Office for Budget Responsibility (OBR). The net debt forecasts have deteriorated since the last Autumn Statement. This follows the sharp reduction in the real GDP growth forecasts from 1.2% to 0.6% in 2013 and from 2.0% to 1.8% in 2014," said Michael Quach, investment strategist at Smith & Williasmon, as an initial comment on UK Budget 2013.
The UK economy has been stagnant over the past two years in spite of the extraordinary monetary policy loosening by the Bank of England (BoE).
The lacklustre economic recovery and the medium-term outlook continue to be hampered by the on-going deleveraging process in the private and public sectors, weak real income growth, muted export growth and the lacklustre credit conditions.
The fiscal measures announced by the Chancellor in the Budget are unlikely to have a big impact on the economic outlook. The Chancellor is instead advocating greater monetary activism from the BoE - by allowing the use of unconventional measures including explicit guidance on future interest rates – to boost growth in the economy.
Monetary stimuli are significant but, on their own, cannot guarantee an improvement in the economy as long as demand remains so weak. Notably, economic and policy uncertainties are causing households and businesses to significantly hold back on spending and hiring. The economy is thus expected to recover slowly, supported by an easing in credit conditions and an improvement in the global economy.
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