Warning over short-term effects of austerity

The government's austerity programme will have a short-term negative impact on the economy, an expert has sated, something which may have an impac…

The government’s austerity programme will have a short-term negative impact on the economy, an expert has sated, something which may have an impact on those already struggling with debt.

Economic advisor to the British Chambers of Commerce David Kern remarked: “We are facing a big deficit cutting programme which is necessary but it is nevertheless going to cause problems for consumers and businesses.

“For the economy it is good but in the short-term it will cause problems.”

People facing problems now may struggle even more if the next few months bring slow growth or even a new contraction in the economy.

Those in the greatest trouble may find an individual voluntary arrangement will be the best way out of debt, through an agreed programme of reduced payments to be made over a five-year period.

However, Mr Kern said, matters are worse in Europe because several countries are at risk of defaulting on their debts.

And he also dismissed concerns about the recent fall in the Nationwide Consumer Confidence Index – which dipped to its lowest level in over a year during October – saying such data should be taken “with a pinch of salt” as it will have less impact than some imagine.

Mr Kern’s words come at a time when the Office for Budget Responsibility has just revised its projections for the UK economy.

It suggested growth in 2010 will be higher than originally predicted at 1.8 per cent, but 2011 will see less than previously thought at 2.1 per cent, rather than the 2.3 per cent forecasted in the last report.

By James Francis

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