The British government is scheduled to unveil an annual budget on Wednesday that is likely to build on the coalition government’s deficit-slashing austerity strategy, while also seeking to grow a -recession-threatened economy.
British Chancellor of the Exchequer George Osborne presents his budget for this year and next year to parliament, one week after Fitch warned that Britain’s gold-plated “AAA” credit rating was increasingly at risk as it placed the country on a negative watch.
Although Britain is at risk of further recession amid anemic economic growth at home, and debt troubles in key trading partner the eurozone, Osborne is expected to maintain a policy of huge cuts to state spending.
“The chancellor’s resolve to stick to his austerity plans appears to be as strong as ever,” said Vicky Redwood, an economist at Capital Economics research group, ahead of Wednesday’s budget.
Fitch last week lowered Britain’s long-term outlook to “negative” from “stable,” blaming the “very limited fiscal space to absorb further adverse economic shock,” but confirmed the country’s “AAA” credit rating because of the government’s austerity policies.
The British Treasury welcomed Fitch’s assessment, despite the negative outlook.
“This is a reminder of why it is essential Britain sticks to its plans to deal with its debts,” a spokesman said. “This is a just another warning to anyone who believes there can be deficit-financed giveaways in [the] budget.”
Britain’s Conservative-Liberal government, which won power in 2010, has since implemented huge public spending cuts and tax hikes to slash a record deficit inherited from the previous Labour administration.
The coalition is eager to preserve Britain’s valuable “AAA” credit rating, that keeps state borrowing costs low, and avoid a Greek-style sovereign debt crisis.
Ahead of Wednesday’s budget, British media reported that Osborne would use fresh austerity measures to offset a plan to cut income tax for high earners — from 50 percent to 40 percent.
Osborne, presenting his third budget, has reportedly faced fierce pressure from the right wing of the Conservative Party and business leaders to slash the top rate — to help stimulate growth and boost Britain’s faltering recovery.
Meanwhile, Treasury sources have confirmed that Osborne will launch plans in the budget to issue state bonds, or gilts, lasting 100 years or longer, as the government seeks to lock in historically low interest rates.
“The chancellor’s room for maneuver in the budget is negligible,” Barclays Capital analyst Chris Crowe said.
Britain’s economy shrank 0.2 percent in the fourth quarter of last year compared with the third, recent official data showed, putting the country close to a return to recession.
A further contraction in the first quarter of this year would place Britain back in recession, defined as two successive negative quarters. First quarter data is due to be released next month.
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