“The Chancellor is standing between a rock and a hard place. While the UK economy is in reasonably good shape he wants to announce tax cuts and increased public investment on Wednesday to signal to voters, in the run up to next year’s general election, the good work that has been done by this government but he needs to make good the Conservative manifesto pledge from the 2010 election ‘to balance the books.’ With government borrowing at more than £2bn a week this is increasingly looking like a broken promise which he is unable to repair,” Dr Faggio said.
“A failure ‘to balance the books’ has been exasperated by a stagnation in real salary levels – the share of wages in GDP is now at the lowest level since Q1 1998. The hope that salaries will pick up in Q1 2015 may be too late for the government. He needs a quicker solution.
“The Chancellor will emphasise in his statement that the UK recovery is both the results of buoyant consumer spending (it rose by 0.8% QoQ in Q3 – the strongest quarter in four years) and strong investment spending (it grew 1.0% QoQ in Q3). He will also stress that Q3 2014 is the eighth consecutive quarter in which the QoQ gain in investment has exceeded the gain in consumer spending – the longest such run since the mid-1960s.
“However, the Chancellor may live to regret the announcement to reintroduce the fuel stabiliser system, which was shelved in 2011, if oil fell to $75 a barrel. This could mean a fuel increase of about 1.7 per litre which would not be well received by the UK’s 38 million drivers. With Brent crude standing at just above $70 a barrel today this is a problem that the Chancellor could do without in the build up to his big day.”
Dr Giulia Faggio is a Lecturer in Economics in the Department of Economics and Quantitative Methods, at the Westminster Business School, University of Westminster. She is also a Research Associate at the Spatial Economics Research Centre at the London School of Economics (LSE), where she worked as a full-time Research Officer between April 2010 and August 2014. She previously worked as a Senior Economist at Citigroup Global Markets Ltd. and as a full-time researcher at the Centre for Economic Performance at the LSE.
If you would like further information or to interview Dr Faggio please contact the University of Westminster press team at Broadgate Mainland on 020 7726 6111 ([email protected]).