The Chancellor, Alistair Darling is expected to announce that the UK shrank by 4.75% in 2009 in his pre-budget report, far more than the 3.5% previously forecast. This will rival that experienced in the Great Depression.
Despite this he is further expected to claim that the economy will return to growth next year. The government, already mired in debt and a vastly reduced tax take, will have to shred its plans and maybe look to borrow even more. Growth projections for the third quarter this year actually ended a reality of a contraction of 0.3%.With the huge decline in tax revenue the Government had to borrow Â£11.4Bn in October, which is a record for that month.
The extra contraction we have experienced is being blamed on an extremely bad first quarter to 2009. The UK economy has now contracted for the last 18 months (6 quarters) but others such as the US, France, Japan and Germany have started to see growth.
The Chancellor is still upbeat and told the Commons during Treasury Questions that he is expecting growth into the New Year and recent retail figures indicate he may well be right. He has though already had to admit that Gordon Brown was wrong to say that the UK was better placed than the rest of the world to exit this recession. He said at the time that further fiscal stimulus could not be ruled out.
I think the government may come to regret making a rod for its own back by suggesting a Bill to halve the deficit within the next 4 years. Not that there is much chance of them ever having to answer for it.