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How can the economy grow with pay cuts on the way?

There is a growing fear about the state of the UK economy and the prospects 2010 with more and more companies stepping forward to confirm that they will either introduce pay freezes and/or job cuts over the next 12 months. Against this background, it is more and more difficult to see how the UK economy can improve in the short to medium term with taxation set to increase and disposable income set to fall. So where does this leave the UK economy?

It is something of a quandary to see how the UK economy can expand over the next 12 months if job losses are likely to occur and disposable income is likely to fall further. It may be that the UK government will again be forced to inject more and more money into the economy, although this would create yet more financial crutches for the UK economy which will at some stage have to be taken away. The VAT reduction from 17.5% to 15% is one such crutch which will be taken away on 1 January and there are already serious concerns about the impact this may have.

As we have mentioned on numerous occasions, there had been a growing feeling that the UK economy was over the worst but those who expect a sudden bounce back to the boom and bust times of years gone by will be sadly mistaken.

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