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UK government under pressure from OECD

The UK government is today under pressure from the Organisation for Economic Co-operation and Development (OECD) which believes that the UK government needs to put forward a strong and credible plan to tackle the UK budget deficit whilst also maintaining momentum in the economy and reducing the impact of inflation. No mean feat!

There is no doubt that the UK government is facing some very tough decisions in the short to medium term and while the reduction in public-sector investment will cause something of a drag on the economy it should also help to dampen inflation. However, there are those who believe that inflation could become a major issue in the short to medium term and we could see UK interest rates increase later in 2010.

While the £6.2 billion of public-sector investment cuts announced earlier this week were well received by the financial press the very fact these are only 10% of the overall cuts required perfectly illustrates the difficulties facing David Cameron. There is also the potential for the UK to lose its AAA rating in the credit markets which would not only impact upon investor confidence in the UK but also increase the cost of servicing existing debt and raising new finance in the future.

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