Public sector budget affecting stock market companies
Yesterday we saw a 30% collapse in the share price of Connaught which operates in the public sector by taking on contracts from local authorities in the UK. The company has been doing very well over the last few years, having grown significantly during this period, but yesterday the management announced that a number of local authority contracts were being reviewed after the significant public sector budget reductions announced by George Osborne.
There is growing concern that the plight of Connaught, which could see revenues reduced by £80 million for the current year, may well be just the tip of the iceberg. There are many companies in the UK which have benefited from the massive increase in the public sector budget which now accounts for over 50% of the UK workforce and over 50% of household incomes in the UK. This is the real price of George Osborne's budget cuts with many more to follow in the years ahead.
There had been hopes that the private sector would effectively fill the vacuum created by budget cuts but if the Connaught situation is anything to go by then this may prove a significant challenge for George Osborne.
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