Today, the UK took a chainsaw to its budget to the tune of roughly $120 billion. Unlike the US, the nation feels obliged to implement a few austerity measures that may lend some credibility to its AAA credit rating despite its record budget deficit. The cuts include raising the retirement age, reducing welfare benefits, and making plans to let go of nearly 500,000 government workers.
According to Reuters:
“The jury remains out on whether the economy — just recovering from the worst recession since World War Two — can survive the squeeze which will cut growth by around half a percent each year. Analysts expect the Bank of England to keep monetary policy super-loose for the foreseeable future.
“Nor is it clear whether the cuts — aimed at bringing down a record budget deficit of 11 percent of GDP — can actually be achieved. More of the burden has been shifted to the notoriously hard-to-cut welfare bill — an extra 7 billion pounds on top of the 11 billion pounds cuts already announced…
“… [Conservative finance minister George Osborne] said the state pension age for men and women will rise to 66 by 2020 and that 490,000 public sector jobs were likely to disappear over the next four years.”
In addition to the cuts mentioned above, significant budget reductions will be made in Defense, Home Office, Rural Affairs, Justice Ministry, Local Government, Business Innovation, and a slew of other areas. Even the Her Majesty the Queen has accepted a freeze on her palace cash allowance.
As BNP Paribas economist Alan Clarke suggests in the article, “The consensus forecasts imply these will feel like a paper cut — we believe reductions of this magnitude will feel more like an amputation.”
The UK is at least seriously posturing on its budget deficit… it remains to be seen if the US will follow suit. You can read more details in Reuters coverage of how the UK is slashing spending and raising its retirement age.
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