Pessimistic outlook for economy, x4

The UK building industry, PwC, the new director general of the IoD all have a pessimistic outlook on the economy. And the Treasury is concerned about the “very great” risks to the UK economy, if the euro were to break apart.

The £50bn UK building industry is increasingly pessimistic about the next 12 months as public sector cuts begin to bite.

The construction sector is struggling with the sector’s worst contraction since the 1970s.

According to PwC, the accountancy firm, more than 3,600 firms became insolvent during July and September, an increase of nine percent on the same period last year, although a reduction on the period from April to June.

PwC sees ‘little or no room for manoeuvre’ for retailers in the run-up to Christmas, recognising that this period can account for half the annual profits of non-food retailers.

The new director general of the Institute of Directors also says business is “desperately worried” about the state of the economy, and it is “compounded by worries about the Euro.”

He says tax cuts are the answer.

But tax cuts for struggling businesses would be likely to be used to cover existing losses rather create additional spending. Thus the increase in GDP generated would be less than the amount of the cut, meaning that tax cuts for business would likely reduce government income, and hence government spending, and hence spending overall, thus deepening the recession.

Chancellor George Osborne at the Treasury is also worried about the risks to Britain if the euro breaks apart. A treasury official told the FT that the risks were “very, very great”.

Stephen King, chief economist at HSBC, says a breakup of the euro would threaten “another Great Depression.”

Impacts would include reduced trade (40% of exports go to Europe), reduced performance in the financial sector, and impacts to the “millions” of cross-border assets and contracts.

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