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Budget 2010: Alistair Darling reduces economic growth forecasts

As expected, Alistair Darling has taken the opportunity to reduce his forecast for growth in the UK economy to between 1% and 1.5% in 2010 and 3% to 3.5% in 2011. While there is no doubt that the new economic growth forecasts are more in line with the market average they are still significantly above that expected by the vast majority of economists and analysts in the UK and many monetary policy authorities around the world.

While many will argue that a difference of 0.25% in economic growth forecasts is irrelevant, this actually works out at billions upon billions of pounds in economic productivity and a significant amount of taxes for the UK government. The problem now is that if UK government forecasts are indeed prove to be optimistic for 2010 and 2011 then tax income for the authorities would be significantly less than expected.

If this is the case, there is no doubt that UK national debt will not fall by as much as expected and indeed we could see a more severe reduction in public sector investment in the short to medium term. The reputation and the future of the Labour Party, at least in the short term, rest on how market analysts react to the slight reduction in growth forecasts.

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