City Expert Says Darling “Does Not Go Far Enough” In Pre Budget Report

Date: London, 9 Dec 2009

In his Pre-Budget Report this afternoon, UK Chancellor Alistair Darling revealed his plans to halve Britain’s £175 billion deficit in four years, in an attempt to reassure investors that he could bring the UK’s ballooning deficit under control.

Darling spoke of cutting the deficit “in an orderly way “, and suggested that four years was a “sensible timetable” that would not damage recovery. And in a move that will shock investors, he stuck by his 2011 growth forecast of 3.5 pc.

Mark Bolsom, Head of UK Trading Desk at Travelex, the foreign exchange payments specialist, said that although the report was upbeat and conciliatory, it did not go far enough and was “too political.” 

“The Chancellor had to walk a tightrope between fiscal responsibility and the risk of choking off any potential economic recovery in today’s report. However, despite the challenging economic and political backdrop, he did not go far enough in proposing the public spending cuts necessary to increase Britain’s rate of recovery. Although unsurprising, investors will be disappointed and unsettled by this.”

“It is also incredibly disappointing that his 2011 growth forecast has stayed at 3.5 pc, which is an optimistic figure. Even his 2010 growth forecast of 1 and 1.5 pc seems optimistic, as it has been jeopardised this week by downbeat UK data. The UK is not out of recession yet - data continues to be mixed and our recovery sluggish.”

Despite this, Bolsom says news that Britain’s borrowing is only slightly off target - reaching £178 billion this year, not much more than the £175 billion Darling initially predicted, will be “very reassuring for investors and will help to rebuild confidence, speeding up the pace of recovery.”

The pound bounced 0.12% against the dollar in reaction to this news, moving up to $1.6370 and to 1.1048 against the euro.

Bolsom says, “What happens to sterling now hinges on whether the markets buy into Darling’s plans. In terms of the pound’s short term outlook, it is vital that investors do.”

The Chancellor also threw 800,000 of small UK businesses a lifeline in his report this morning; deferring a 1p rise in corporation tax that had been due in 2010.

Bolsom says, “The fact that Darling left the corporation tax unchanged sends a strong signal of support to small businesses in the UK. He is obviously learning from mistakes that were made in the recession of 1990-2, when failure to support small businesses had a lasting influence on the UK economy.”

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Jessica Buttress
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Founded in 1976, Travelex is the world’s largest non-bank foreign exchange and payments specialist; with operations across four continents and 6,000 employees worldwide.

Travelex holds key positions in its three main areas of activity: Global Business Payments (TGBP), Currency Services and Card and Mobile Payments. Every year, more than 35,000 corporate clients and 30 million customers trust Travelex to manage their foreign exchange requirements.

Recently recognised by TowerGroup research as Industry Leader for payments innovation for SMEs, Travelex currently handles international payments worth £40 billion annually for over 750 large corporate and financial institutions.

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