Wednesday, September 23

The end is nigh


It’s time for me to get off the fence. I admit that Summer is officially over. There no point pretending otherwise as today is the autumn equinox. This basically means we enjoyed exactly 12 hours of daylight and 12 hours of darkness over the last 24 hours. In fact it's almost dark by the time I get home from work these days. Fortunately, the weather has remained relatively warm (by English standards) with temperatures hovering around 20°C most days. I even joined colleagues for an alfresco lunch in the garden bar of a local pub today.

Daylight isn't the only thing that's rapidly diminishing at the moment. This week the Pound Sterling has weakened against major currencies once again. £1.00 is currently buying only A$1.87. This time last year we were briefly getting A$2.67. It's hard to believe the same currency is now worth 80 Australian cents, or 30% less in a single year.

The dramatic decline in the value of the pound really highlights the rather dire state of the UK economy. The message is hammered home by a story out today about Britain's EU budget contribution. Each member state makes a budget contribution on the size of its economy. The budget typically remains stable from year to year, while the contributions vary between countries. In 2008 Britan contributed €844 million to budget, down from €4.16 billion the year before. It's not exactly a ringing endorsement of the UK economy.

Given this situation the dominant news story right now is a noisy debate over the size and scale of public sector spending cuts required to get the nation's ballooning budget deficit back under control. As the Government bails out banks and pumps stimulus spending into the national economy its overall debt has grown by £172 billion in a year The national debt now stands at £804.8 billion, or 57.5% of GDP.

A couple of months ago, the Institute for Fiscal Studies, estimated that the government will have to reduce spending, or increase taxes, by £90 billion over the next decade to bring down the deficit. This equals £2,840 for each family annually by 2017-18. Furthermore, analysts estimate that if the Government wants to protect health and education spending, cuts by other public sector departments will need to exceed 13%. Of course none of these cuts are likely to happen before the next General Election (which must take place before June 4 next year). As a result, I can see the Summer of 2010 remembered for its bitter public sector strikes and deteriorating public services.

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