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What if government forecasts for the economy are wrong?

While the UK budget last week received very mixed reviews in the financial press, we continue to see a flurry of third-party reports on the UK economy suggesting the worst may be yet to come. When you consider these reports against Alistair Darling's "rose tinted glasses" review of the UK economy and the short term potential for a recovery, many are asking what will happen if the UK government forecasts are wrong.

In simple terms, if the government forecasts for the short to medium term are incorrect then the UK economy is in serious trouble. We will see social security payments continue to rise, income tax receipts continue to fall and national debt remain at record levels. This could, if it drags on for too long, force the UK government to go cap in hand to the International Monetary Fund (IMF) as many people believe could still happen.

Amid accusations that the budget last week was purely "political" there may be a window of opportunity for the government to seek re-election using forecasts which will ultimately prove incorrect. However, we may only find this out after next year's general election when it will be too late for those floating voters who will decide the outcome.

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