There is a particularly depressing headline in the UK Telegraph stating that Britons will have to work until the age of 70 to bring public debt under control. The NIESR who made the prediction believes that the UK will have to take drastic measures such as raising the retirement age, drastically raising taxes, and/or sharply cutting spending to reduce the debt burden in the wake of government borrowing plans amounting to £175 billion (see A taxing time in the UK).
All of these look unpalatable but there is little choice otherwise future generations will have to pay a heavy price and/or investor demand for government debt could collapse. At the same time the NIESR forecasts that the UK economy will drop by a whopping 4.3% this year, which is more pessimistic than government forecasts.
The size of the debt burden is clearly distressing but by now most of us have likely got over the shock of the budget announcements. Although the issue will not go away quickly attention is turning to some positive signs emerging in the UK economy and the housing market. For instance, amidst the gloom of the NIESR predictions they also forecast that the economy will begin to grow again in the fourth quarter of this year.
There was also a separate report just released showing that UK consumer confidence rose the most in close to 2-years according to the Nationwide. Importantly, the gauge of future expectations rose sharply, suggesting a recovery in the months ahead. Added to evidence that mortgage approvals have risen to a 10-month high, whilst manufacturing and service sector confidence have improved, it looks as though the economy and the housing market are finally beginning to bottom out.
All of this will take some of the pressure off the Bank of England but it does not mean that the BoE’s £75 billion asset purchase plan will be scaled back any time soon. Moreover, interest rates are likely to remain on hold at the low level of 0.50% for several months to come, which in turn is good news for consumers and borrowers alike. So, perhaps its time to shake off the gloom and look ahead as the worst for the beleaguered consumer has likely passed.