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Thursday, April 23, 2009

Britain expects return to growth in 2009

The New Age

Britain on Wednesday forecast a return to growth in late 2009 after its worst recession since World War II, as prime minister Gordon Brown seeks to boost his popularity before key elections.
Delivering the Labour government’s annual budget to parliament, finance minister Alistair Darling predicted the British economy would start growing again ‘towards the end of the year’, winning the praise of Britain’s biggest union.
Chancellor of the Exchequer Darling warned however that British gross domestic product would contract 3.5 per cent in 2009, far worse than a previous government estimate.
The economy will then grow 1.25 per cent in 2010, forecast Darling, whose Labour Party led by Brown is trailing the main opposition Conservatives in the polls ahead of a general election that must be held by the middle of next year.
Analysts had expected Darling to say that growth would not resume until 2010 amid the worst global downturn since the 1930s.
Darling on Wednesday also warned that public borrowing would balloon to a record 175 billion pounds ($256b) in 2009-10 from 90 billion pounds in 2008-09.
The government’s forecasts for 2009 growth contraction and public borrowing in the current fiscal year are in line with analysts’ expectations.
The budget included plans aimed at helping young people back into work and providing a boost to Britain’s struggling housing and auto sectors.
In line with Germany, France and other European countries, Britain will launch a car-scrapping scheme from next month worth 2,000 pounds per car.
The leader of Britain’s biggest union Unite, Derek Simpson, said Darling deserved credit.
‘Alistair Darling had to deliver the toughest budget in decades but he has positioned Labour as the party for jobs and social justice while exposing the Tories for being the party of cuts and inequality,’ Simpson said.
But ahead of the budget, official economic data showed worsening unemployment and soaring public borrowing as Britain struggles with the global financial crisis.
Labour, in power since 1997, is lagging behind the Conservatives by up to 19 points, according to recent opinion polls.
Conservative leader David Cameron attacked the soaring levels of borrowing unveiled by Darling, saying the chancellor had written himself into the history books and ‘written a whole chapter in red ink’.
Official data Wednesday showed Britain’s public borrowing had soared to a record 90 billion pounds in 2008-09 as the government bailed out banks and tried to tame the recession.
Elsewhere, it was announced that Britain’s unemployment rate jumped to 6.7 per cent in the three months to February from 6.1 per cent in the previous three months as people claiming jobless benefits rose to 2.1 million — the highest level for 12 years.
Compounding Britain’s woes are slumping tax revenues, due to rising unemployment and also the government’s decision late last year to slash sales tax on goods and services to boost consumer spending.
The VAT reduction is due to expire at the end of 2009.
The public purse has meanwhile been stretched by a series of costly bailouts in which the government has rescued some of the country’s biggest banks from the international credit crunch.
The International Monetary Fund on Tuesday said the financial crisis would cost Britain’s banks the equivalent of 9.2 per cent of gross domestic product — or around 132 billion pounds — by the end of the year.
In his pre-budget report last November, Darling launched a 20-billion-pound economic stimulus package of tax cuts, including reducing the VAT rate.



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