Is it dangerous to cut public spending and the quantitative easing program?
As the Chancellor Alistair Darling wrestles with the problem of reducing the UK government's overdraft and addressing the issue of public services there are very few people who would like to be in his shoes at the moment. While at some stage we will certainly see a reduction in investment into the public sector and a closing of the government's quantitative easing program, but if the two were to happen together there could be a dramatic impact on the UK economy.
Stripping out the billions upon billions of pounds of quantitative easing injected into the system and also cutting back on public sector investment would mean more job losses, less liquidity in the system and a potential impact on the growing confidence in the UK economy. However, the UK government at this point in time cannot afford to extend the quantitative easing program and continue investing in public services at the rates we have seen over the last decade. Something has to give!
The announcement that the UK government is reviewing public sector gold-plated pensions (i.e. final salary schemes) has been welcomed but in truth this only scratches the surface of the problem the UK government is set to encounter. There are many more difficult situations to resolve in the short, medium and longer term, for whichever government wins office next year.
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