Britain awaits fresh austerity budget before 2015 vote

March 18, 2014
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Britain's finance minister George Osborne/FILE
Britain’s finance minister George Osborne/FILE
LONDON, Mar 18 – Britain’s finance minister George Osborne has hinted at more austerity in the country’s annual budget due Wednesday that could also deliver sweeteners before a 2015 general election.

Chancellor of the Exchequer Osborne is expected to keep the coalition government’s deficit-slashing policies firmly in place despite Britain’s economic recovery picking up speed also before this year’s referendum on Scottish independence.

“We must not waver from our plan to reduce the budget deficit and deal with Britain’s debts,” Osborne wrote in British tabloid The Sun on Sunday.

“The recovery is under way, but the single biggest risk would be to abandon the long-term economic plan that is working,” added Osborne, a member of Prime Minister David Cameron’s Conservatives which heads a coalition government compromising also the Liberal Democrats.

The coalition has embarked upon a vast austerity drive since coming to power in 2010, two years after the start of the global financial crisis, in a bid to bring down a record deficit inherited from the previous Labour government.

Wednesday’s budget is seen as firing the starting gun on a fierce election campaign that will pit the Conservatives against the Liberal Democrats and main opposition party Labour.

“With little more than a year until the general election, the chancellor will be looking to hammer his message home to voters that the recovery is taking place, but that only a Conservative-led government can be trusted with the economy,” said analyst Philip Shaw at financial services firm Investec.

“There are hopes in a number of quarters that Mr Osborne will signal tax cuts. This is not impossible, and of course it is politically inevitable that there will be some giveaways, but we expect a neutral budget overall.”

Osborne on Sunday announced that the budget would include plans to extend until 2020 a scheme that helps people to join and move up the property ladder by offering government-backed loans for house purchases.

The move, which boosted share prices of British home builders on Monday, has been criticised by some experts amid fears that the Help to Buy scheme risks creating a fresh property bubble in London, where house prices are rising strongly.

– Last budget before Scottish vote –

Wednesday’s budget is also the last before Scotland votes in a referendum on whether to become independent from the rest of Britain — a poll that has massive financial implications.

All three of Britain’s main political parties have joined forces to campaign for a “no” vote at the September referendum.

But First Minister Alex Salmond’s governing Scottish National Party is in the “yes” camp and has urged Scotland’s 5.3 million people to join him. Scotland has enjoyed increased autonomy since a 1997 referendum on devolution but the SNP now demands full independence.

The fate of North Sea oil revenues is one of the biggest issues ahead of a referendum on September 18 that will decide whether Scotland will end its 300-year-old union with England.

Osborne has meanwhile warned that Scotland would have to leave the pound if it voted to become independent.

On Wednesday meanwhile, the chancellor is expected to upgrade the government’s projections for Britain’s economic growth after it enjoyed 1.8-percent expansion last year — the fastest annual pace since before the 2008 financial crisis.

The unemployment rate has meanwhile held close to the lowest level for almost five years.

“Although the upgrade to growth could give the pound a boost, we expect it to be short-lived as the market already knows that the 2014 economic performance is likely to be stronger than initial forecasts,” said analyst Kathleen Brooks at trading site Forex.com.

As Britain’s recovery gathers speed, markets increasingly expect the independent Bank of England to next year begin raising its key interest rate from a record-low level of 0.50 percent where it has stood for five years.

Such a move could translate into rising loan and home loan repayments for borrowers just before the general election that is due in May next year.

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