UK plans US$59bn spending cuts, new taxes

The UK took action to get its own budget deficit under control even as world markets were hit by concerns about the exposure of French banks to Greece and other troubled euro-zone nations. The UK FTSE 100 index fell 1% to 5,246.98 but moved off early lows after UK Chancellor George Osborne announced spending cuts and tax increases that will total £40bn (US$59bn) a year by 2015. The budget, which came just six weeks after the Conservative and Liberal Democrat coalition took power, will eliminate the country's structural deficit by the end of the current parliament, Osborne said. He said that total borrowing would fall from £149bn this year to £37bn in fiscal 2015 and that borrowing as a percentage of gross domestic product (GDP) would drop to 1.1% over that period.



The chancellor said that it was an "unavoidable budget" and that promises of early action to cut the deficit had earned the UK credibility in international markets. "Unless we now deliver on that promise of action with concrete measures, that credibility so hard won in recent weeks will be lost," Osborne said. Harriet Harman, acting leader of the opposition Labour Party called it a reckless budget and said that the plan would harm the British economy.

The newly created Office for Budget responsibility to cut its growth forecast for the coming year to 2.3% from 2.6%, though it also lifted its growth expectations from 2013 onward. Gilt sales in fiscal 2011 will be £20.2bn lower than previously expected at £165bn, UK Debt Management Office said. That is a bigger reduction than many economists were expecting.