Clouds gather over the U.K.’s growth outlook
-Sugaring the bitter budget
The long awaited budget announcements were the highlights of last week as some magic was manifested in taking “the sugar tax” out of the hat together with an extra £3.5bn in spending cuts despite signs of a slowdown in the U.K.’s economy.
The government’s independent forecasters; the Office for Budget Responsibility (OBR)concluded that despite Osborne’s insistence that there was “solid, steady growth” the chancellor was forced to admit the U.K. economy is expected to grow 2 percent this year, down sharply from the previous expectation of 2.4 percent.
According to the Institute for Fiscal Studies (IFS) if the budget forecasts were right "we should all be worried" as it will “lead to lower wages and living standards, not just lower tax revenues for the Treasury."
Moreover, Osborne could "make a weak economic situation weaker" if he goes ahead with more spending cuts, the EY Item Club warned last week.
Osborne often blames the slowdown triggered by the “dangerous cocktail of global risks.” Yet there is not much evidence how the economy will maintain its level of productivity while moving towards an uncertain environment with the EU referendum on June 23 to decide if Britain should remain in the European Union.
Finally making headlines in the U.K. newspapers this week was “the sugar tax”; the introduction of a levy on sugary soft drinks. There will be two tiers to this sugar tax: one will apply to drinks with sugar content above 5g per 100ml and another to drinks with more than 8g per 100ml.
- Brexit concerns to pressure sterling
Most major British firms are seriously considering the risk of Britain leaving the European Union and many are making contingency plans, according to the head of the Confederation of British Industry, Director-General Carolyn Fairbairn.
Britain's biggest business lobbying group says 80 percent of members questioned in a survey want to stay in the EU. The CBI said the majority of almost 800 firms taking part felt Britain remaining in Europe was "better for business, jobs and prosperity.”
Recent opinion polls have shown a narrow but growing lead for campaigners who want to leave the EU.
- Deal between LSE & Deutsche Boerse
The London Stock Exchange Group (LSE) and Deutsche Boerse have agreed terms for a "merger of equals." The tie-up will create one of the largest exchange companies in the world with a combined value of about £21bn.
Under the terms of the deal, LSE shareholders will own 45.6 percent of the new holding company, while Deutsche Boerse shareholders will own 54.4 percent.
LSE Chief Executive Xavier Rolet said the two firms were "creating an industry-defining combination."
The two companies said together they should be able to make cost savings of €450million (£354 million) a year, about 20 percent of the combined group's operating costs of €2.2bn last year.
- Interest rate decision
The Bank of England has held U.K. interest rates at 0.5 percent once again.
All nine members of the Bank's Monetary Policy Committee (MPC) voted to keep rates at their record low, where they have now been for seven years.
The decision to freeze rates comes amid worries about global growth and uncertainty ahead of the EU referendum. The Bank said uncertainty in the run-up to June’s referendum on EU membership had hit sterling, which could slow down the U.K.’s economic growth.
- Test of unity within Conservatives
Work and Pensions Secretary Duncan Smith quit on Friday and said the government had focused benefit cuts on people who do not vote Conservative. He warned the strategy risked dividing society.
This week the discussions over the social benefits cuts and implications of Smith’s resignation with the Conservative Party will be closely watched. Following London Mayor Boris Johnson’s lead in the “out” camp to exit the European Union in opposition to Cameron’s EU campaign, along with Smith’s resignation, questions have arisen as to the future of the Conservative Party. So far six cabinet ministers and over 100 members of parliament from the Conservatives support the Brexit campaign.