User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday July 12, 2010 - 12:05:22 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly Will public sector spending cuts push the UK back into recession? Weekly economic data preview - UK inflation and China Q2 GDP in the spotlight

Economics Weekly 12 July 2010


Will public sector spending cuts push the UK back into recession?


The austerity package announced in the emergency Budget has raised concerns that the degree of public spending restraint could tip the UK back into recession. On the face of it, these concerns are understandable. With total spending cuts amounting to £99bn (or 5.2% of GDP) and tax increases of £29bn (2% of GDP) planned by 2015-2016, the fiscal squeeze is the most aggressive since the Geoffrey Howe Budget in 1981. In this weekly, we examine the size of the spending cuts put forward by the Chancellor and assess the implications for the economy as a whole.


How aggressive are the spending cuts?

Since 1997, the share of the economy accounted for by public spending has risen from 38% to 48% - its highest since 1984. Over the next five years, public spending is projected to fall in real terms by 4%. If realised, this would reduce the share of the economy devoted to the public sector to 40% over this period (given the anticipated growth in the economy).


This decline is far from insignificant, particularly when measured against previous assumptions. Moreover, the total cuts in department spending will be far higher than this, as a large proportion of public spending either falls outside the government’s control or is very difficult to change.m This includes, amongst other things, the costs of servicing public sector debt, social security payments and public sector pension obligations.


With limited headroom to cut these categories, It falls to government departments to bear the main burden of the structural spending cuts. Full details of where the departmental axe will fall will not be published until 20 October when the government publishes its next Spending Review. Nevertheless, the totals were set out in the emergency Budget. Based on these, the Institute for Fiscal Studies (IFS) concludes that real spending cuts averaging 14% across all departments would be required for the Chancellor to deliver his objective of a balanced cyclically-adjusted current budget over the next five years. This equates to a structural reduction in department spending of around 5% of GDP in the period.


For most departments, however, the cuts are set to prove far more severe. Since the government has committed to protecting spending on the NHS and overseas aid, the average cut faced by ‘unprotected’ departments is estimated at 25-33% over the next four years. Ahead of the Spending Review, the Treasury has asked departments to seek out potential cost savings of up to 40%.


The expectation is that efficiency savings will account for the bulk of the budget cuts although, given the scale, it seems possible that front-line services could be affected. Moreover, in its latest forecast, the Office of Budget Responsibility (OBR) estimates that as a result of the spending cuts, public sector job losses will total 600k by 2015- 2016.


Economic impact

The scale of the proposed spending squeeze has led to an intense debate about whether or not it will derail the nascent economic recovery. The cuts in public expenditure (both current and capital spending) will have a direct impact on GDP through reducing government consumption and public investment. There will also be a second order impact on consumer spending, savings, and investment as a result of the ensuing public sector job losses.


Balanced against this, however is that public sector borrowing will be lower than would otherwise be the case. This reduction could be expected to reduce the cost of capital in the private sector, and free up savings to finance business investment. This, in turn, could be expected to have positive benefits for employment and consumption and therefore GDP growth.


The net impact of a change in government spending on aggregate demand can assessed by looking at estimates of the fiscal multiplier. The OBR estimates that the fiscal multiplier applied to departmental spending is 0.6. – i.e. a cut in departmental expenditure equivalent to 1% of GDP would have the effect of reducing GDP by 0.6% in the short run. Over the long run, the implications for GDP are assumed to fade, as wages and prices ultimately adjust to bring the economy back to its long-run equilibrium.


Applying the fiscal multipliers to the timetable of proposed cuts in public spending show that the largest impact to GDP growth occurs in 2011- 2012 (see chart a). In that year, GDP growth is 1.5% lower than it would have been had the spending cuts not occurred. Thereafter, the impact of the fiscal multiplier on GDP growth steadily reduces


It should be stressed that estimates of fiscal multipliers are highly uncertain. They depend on numerous factors, including the marginal propensity of businesses to invest, household’s marginal propensity to consume, the resulting monetary policy response, and prevailing inflation and credit conditions. Our own forecasts of the impact of the fiscal multiplier are slightly more cautious than those of the OBR, largely because we believe prevailing credit constraints and a lack of desire by businesses to invest in the current environment will act as an impediment to growth. Moreover, with interest rates already close to zero and term rates at historically low levels, it is unlikely that monetary conditions will loosen further.


Nevertheless, we are cautiously optimistic that the UK economy will be able to continue to recover, despite the scale of the fiscal tightening. We expect GDP growth to rise by around 1% this year, by 2% in 2011, before peaking at 2.7% in 2012. That GDP growth can rise amid such a sharp tightening in fiscal policy is not without precedent. Following Geoffrey Howe’s Budget in 1981, the share of government spending in the economy fell from 48% to 42% over six years. Over the same period, annual real GDP growth averaged 2.7%. Similarly, in the early 1990s, a substantial fiscal tightening under the Major government failed to prevent a strong economic recovery (see chart b).


It must be stressed that given the scale of the structural credit shock, we doubt the improvement over the coming years will be nearly as strong as the recoveries of the early 1980s and early 1990s. Nevertheless, we are cautiously optimistic that even with the scale of fiscal consolidation planned, low interest rates and a pick up in private sector demand should enable the UK to avoid a double dip recession.

Adam Chester, Head of UK Macroeconomics



Weekly economic data preview 12 July 2010


UK inflation and China Q2 GDP in the spotlight



􀂄 The UK data calendar is particularly busy this week. The inflation numbers for June will receive the most market attention, particularly given the nature of the current debate on the MPC with a number of members stressing their unease with the persistently elevated level of consumer price inflation. A jump in petrol costs and the impact of the January 2010 VAT hike have meant that inflation has been above the 2% target every month since December 2009, rising to 3.7% in April, before falling back to 3.4% in May. We expect this disinflationary trend to continue, although on our own forecasts, CPI is expected to remain above 2% through the rest of 2010. If inflation does begin to come down, the debate over the appropriate level of interest rates is likely to become more focused on the uncertain nature of the economic recovery. Given this, we believe interest rates will remain unchanged this year. In June specifically, annual CPI inflation is expected to have declined to 3.1% with a slightly smaller decline in annual rates of both the RPI and the RPIX to 4.9%. In terms of other data, labour market statistics are set to continue to paint a fairly mixed picture with claimant count unemployment likely to fall further, and the more inclusive ILO measure continuing to show little, if any, growth in employment. Headline average earnings growth is forecast to slow as the positive bonus effect drops out of the calculation. Finally, the ONS is set to publish the final estimate of Q1 GDP. No change is expected to the 0.3% quarterly growth rate, but the release coincides with the publication of the annual Blue Book which adds to the uncertainty, given the likelihood of substantial revisions to past growth rates.


􀂄 Last week, ECB President Jean-Claude Trichet was at pains to highlight the good news coming out of the euro-zone economy at the moment. The sharp 2.6% m/m increase in German industrial production during May (and associated strength in exports) is a case in point. With global recovery still being propelled by emerging Asia, Far Eastern demand for Germany’s exports (notably from China) is lending crucial support to economic activity at the moment. But this demand cannot be relied upon indefinitely, particularly amid signs that growth in China is beginning to slow. Although still robust, Chinese Q2 GDP data this week are expected to show annual growth slowed to 10.3% from 11.9% in Q1. Also published this week, Chinese consumer prices are forecast to have risen 3.3% in June – the second consecutive month that inflation has been above the official target of 3%. Given rising inflationary pressures, combined with the recent pick up in wages, we expect the Chinese authorities to raise the prime lending rate to 5.85% by end-2010. This week’s eurozone data releases include EU-16 industrial production data and Germany’s ZEW economic sentiment index for July. For the latter, we look for a relatively modest dip to 26.0 from 28.7 after June’s sharp deterioration prompted by turbulence in euro area financial markets. Beyond this, final CPI data for June are published in a number of countries, including France and Italy.


􀂄 Data from the US this week will help to refine estimates of Q2 GDP growth, with June retail sales and industrial production along with external trade and business inventories for May, due for release. Despite the softer tone to indicators recently, we look for annualised GDP growth to near 3.5%-4% in Q2 from 2.7% in Q1. The latest price trends will also be in focus with June import prices, PPI and CPI all released this week. We look for further confirmation that price pressures remain subdued. In addition, there are a host of Fed speakers this week, including Chairman Bernanke, while the minutes of the 22/23 June FOMC meeting are published on Wednesday. The Treasury will sell $69bn of notes and bonds this week.

Marchel Alexandrovich, Mark Miller and Jeavon Lolay


Economic Research,
Lloyds TSB Corporate
10 Gresham Street,
London EC2V 7AE
0207 626 - 1500


Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.




Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Tue 17 July 2018
AA 08:30 GB- Employment
A 13:15 US- Industrial Production
AA 14:00 US-Powell Testimony
Wed 18 July 2018
AA 08:30 GB- CPI
A 12:30 US- Housing Starts/Permits
AA 14:00 US-Powell Testimony
Thu 19 July 2018
AA 1:30 AU- Employment
AA 08:30 GB- Retail Sales
A 14:30 US- EIA Crude
A 12:30 US- Weekly Jobless
Fri 20 Jun 2018
A 12:30 CA- CPI/Retail Sales

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105