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Market Watch Response: Spending Review 2010 predictions

by: Ray Boulger
  • 20/10/2010
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Market Watch Response: Spending Review 2010 predictions
What’s your property and mortgage-related wish list for the Comprehensive Spending Review – and how much of it is realistic?

Howard Archer, chief UK and European economist IHS Global Insight

While everyone knows these cuts are coming and there is currently still decent public support for the cuts to be made, the release of actual grizzly details of where the axe is falling could erode support for the coalition government.

A key determinant as to how well (or maybe more appropriately how less bad) the cuts are received will be how fairly spread they are perceived to be.

There is the risk that the spending cuts could undermine coalition cohesion since lawmakers are unlikely to endorse cuts which they see as detrimental to their constituency.

From a macroeconomic point of view, attention will focus on whether or not the government is keeping to its timetable for reining in the public finances and how credible – and achievable – the cuts are seen to be.

Pressure is mounting on the government to delay some of the spending cuts due to the increasing danger that it could contribute to a double dip. The indications are that the government will not buckle, for now at least, although it is possible that some cuts will be delayed due to legal reasons relating to cancelling contracts and redundancy costs.

The credit rating agencies will be looking at this very closely. Standard & Poor’s has so far maintained its negative outlook on the UK’s AAA credit rating largely due to concerns that the government may not be able to deliver on its proposed spending cuts.

Both Moody’s and Fitch currently have a stable outlook for the UK’s AAA credit rating, but this could change if the government is perceived to be slipping in its commitment to rein in spending or the plans are not seen as achievable.

Also answering on this week’s Market Watch is:

Ray Boulger, senior technical manager at John Charcol

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