Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Redefining Political Economy, Globalization & Business Models Consequent on Corona Virus Pandemics - 9th Apr 20
Plus500 Rreview - 9th Apr 20
Gold Price Closely Tracks Debt-to-GDP Ratio - 9th Apr 20
Gold, Silver and Rigged Market Socialism - 9th Apr 20
Going to School in Lockdown Britain, Dobcroft Sheffield - 9th Apr 20
Amazon Face Masks to Protect Against Covid-19 Viral Particles N95, FPP2, PM2.5, for Kids and Adults - 9th Apr 20
Is Natural Gas Price Ready For An April Rally? - 8th Apr 20
Market Predictions And The Business Implications - 8th Apr 20
When Will UK Coronavirus Crisis Imrpove - Infections and Deaths Trend Trajectory Analysis - 8th Apr 20
BBC Newsnight Focuses on Tory Leadership Whilst Boris Johnson Fights for his Life! - 8th Apr 20
The Big Short Guides us to What is Next for the Stock Market - 8th Apr 20
USD Index Sheds Light on the Upcoming Gold Move - 8th Apr 20
The Post CoronaVirus New Normal - 8th Apr 20
US Coronavirus Trend Trajectory Forecast Current State - 7th Apr 20
Boris Johnson Fighting for his Life In Intensive Care - UK Coronavirus Crisis - 7th Apr 20
Precious Metals Are About To Reset Like In 2008 – Gold Bugs, Buckle Up! - 7th Apr 20
Crude Oil's 2020 Crash: See What Helped (Some) Traders Pivot Just in Time - 7th Apr 20
Was the Fed Just Nationalized? - 7th Apr 20
Gold & Silver Mines Closed as Physical Silver Becomes “Most Undervalued Asset” - 7th Apr 20
US Coronavirus Blacktop Politics - 7th Apr 20
Coronavirus is America's "Pearl Harbour" Moment, There Will be a Reckoning With China - 6th Apr 20
Coronavirus Crisis Exposes Consequences of Fed Policy: Americans Have No Savings - 6th Apr 20
The Stock Market Is Not a Magic Money Machine - 6th Apr 20
Gold Stocks Crash, V-Bounce! - 6th Apr 20
How Can Writing Business Essay Help You In Business Analytics Skills - 6th Apr 20
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

UK Emergency Tax Cuts to Get Consumers Spending

Economics / UK Economy Nov 24, 2008 - 12:25 AM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleLater today, Alistair Darling the Chancellor of the Exchequer is expected to announce a series of emergency tax cuts aimed specifically at consumers to get them spending again as the retail sales market falls off the edge of the cliff following hard on the heels of the crash in the banking system that required an emergency £500 billion bailout to prevent a catastrophic collapse of the financial system. This was followed by an emergency 1.5% interest rate cut at the November Bank of England MPC meeting and therefore sets the continuing scene of emergency near panic actions aimed at two primary goals.


1. To prevent the economy from collapsing further than the anticipated 2% contraction during 2009.

2. To lay the ground work for a potential Mid 2009 election.

Have Consumers Stopped Spending?

Whilst official data suggests positive retail sales of 2% year on year as though everything remains rosy on the high streets, the real state of the UK high street as per trend and inflation adjusted data illustrates a slump in retail sales activity that is contracting at the rate of -1.8% year on year and reflects the actual state of the retail sales market. This trend is expected to continue deteriorating for the duration of the recession as more retailers report losses and in fact go bankrupt.

UK Real Retail Sales - Trend Adjusted

More Bargains Coming for Shoppers

The outbreak of panic sales of 20% plus off marks just the first stage of the consumer bust of 2009. Shoppers can expect more discounting the closer we get to Christmas, followed by deeper cuts during the January sales and later in 2009 by the 70% to 80% price cuts in the CLOSING DOWN SALES as many retailers go bust.

Tax Cuts to Get Consumers Spending

The government has done well to leak key elements of the proposed tax cuts targeted at consumers ahead of Mondays announcement, these look set to total in the region of £20 billion and focus on -

  • VAT Cut to 15% - Cost £13 billion, European rules do not allow for a deeper cut.
  • Small Business 1p Tax Rise Postponement- Cost £2 billion
  • Tax Free Allowance Extension - Cost £3 billion - The extension in tax allowances to cover abolition of the 10% band will continue during 2009.
  • Tax Credits - Cost £2 billion - To put money directly into traditional labour voters pay packets that have the greatest propensity to spend.

To counter Monday's borrowing fuelled spending spree and the additional £100 billion of 'officially recorded' net borrowings during 2009, are to be paid for from those earning above £150k by means of a 45% top tax rate. The notion that this will pay for the £20 billion giveaway on Monday is ridiculous, as at most this will raise £1.2 billion per year and therefore the measure is more for political purposes as a message to differentiate Labour from the Conservative party in the build up to a mid 2009 election.

Soaring Government Debt

As my earlier analysis illustrated ( Gordon Brown Bankrupts Britain to Win Next Election Mid 2009), UK real public debt is expected to soar far beyond the 2007 level of £614 billion towards an estimated £1,065 billion this year. This would put UK debt at an eye watering 81% of GDP up from 46% of GDP in 2007. However worse is to come in 2009 and 2010 as the UK economy contracts and the short-fall between tax revenues and government spending is met by ever more government spending.

UK Public Sector Real Debt

UK Real Debt GDP %

Savers Pay the Price for Government Borrowing

Whichever government wins the next election, will be forced into taking measures to bring government borrowing under control to avoid igniting hyper inflation that will destroy the value of savings much as occurred during the 1970's. British savers have already witnessed a loss of value of savings of as much as 20% this year despite receiving interest rate payments of as much as 7% due to the crash in sterling which will filter through into higher headline inflation.

The crash in sterling is not over as more and more investors pull out of the UK in the face of the growing level of borrowing. This puts Britain on a similar path to bankrupt Iceland, unless inflation is brought under control which means much higher interest rates, therefore the deflationary bust of 2009 looks set to be followed by much higher inflation than anyone at this time is forecasting, and especially the Bank of England which forecasts CPI inflation of 1% during 2010. More on the prospects for inflation in the imminent publication of the Market Oracle UK inflation forecast for 2009-2010, to receive this and other forecasts in your inbox subscribe to our always free newsletter.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article. Republished articles must include attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules