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Budget 2012

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Based on the announcement of today’s Budget statement the outlook for the UK economy is
looking slightly more encouraging than it did nearly four months ago, when the Chancellor of the
Exchequer delivered his Autumn Statement.

The Chancellor is, however, in the difficult position of not being able to significantly increase
borrowing to fund net tax cuts which could stimulate growth, for fear of triggering a bond market
ratings downgrade and interest rate hikes. He is also unable to cut Government spending much
further to help pay off Government debt, which would help to keep bond rates, and therefore
interest rates, low (and act as a longer-term growth stimulus). This is due to the fact the welfare bill
is high given of current levels of unemployment and the danger that further significant cuts would
impact negatively upon GDP and unemployment in the short-term.