The government set out its plan and will spend £billions of borrowed money to fund tax cuts in an attempt to “soften the blow” of major slow down in our economy. He did however warn that taxes would have to rise later to pay for the boost. (Delayed pain?)
Tax cuts
His plan revealed a cut in VAT from 17.5% to 15% for 13 months and extends help for small businesses, low earners and households in a package worth up to £16 billion. This temporary reduction is the equivalent of the Government giving back some £12.5 billion to consumers to boost the economy. The idea I think is for the government to borrow money in the short term in order to pay back funds when the economy improves again.
UK Business
Corporation tax for small firms was set to rise to 22% from April 2009 from 21% as part of a staged increase set out in the March 2007 budget, the plan to do this has been abolished.
'This will provide a boost to small companies, leaving their tax rate in 2009 unchanged,' he told parliament. 'I believe these steps will help businesses through the current difficulties and enable them to invest.'
Darling said an estimated 75,000 businesses would benefit from this change.
Sterling remains low against the Euro as the market continues to digest the report with many mixed signals being given around the market. On the positive side for the pound this is obviously a life line by the government for our ailing economy but is it a good measure longer term? The more negative comments for the UK surround the concern over more borrowing and the burden this will have on the economy in coming years.
We are currently trading way below the high of the day (1.1883) at 1.1768. Watch out for the MPC including our governor Mervyn King speaking (again) tomorrow morning at 9.45am to parliament’s treasury select committee. As we know a lot can happen when these guys “talk” as the market looks for clues to if and when further interest rate cuts may occur in the UK.
Lets Go Shopping !!!!
Pounds to Euros = 1.1772
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