276 lines
6.9 KiB
Plaintext
Executable File
276 lines
6.9 KiB
Plaintext
Executable File
finance
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budget
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8399039
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-----
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# UK economy delivers double blow to George Osborne ahead of Budget 2011
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## The Chancellor must unveil Wednesday's Budget against a grim economic
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backdrop, after new figures stoked fears inflation is out of control and
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revealed that the nation's finances are in a worse state than thought.
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![UK economy delivers double blow to George Osborne ahead of Budget 2011][1]
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Inflation threatens the Chancellor's plans to reduce the budget deficit Photo:
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REUTERS
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[![Emma Rowley][2]][3]
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By [Emma Rowley][4] 6:00AM GMT 23 Mar 2011
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[Follow Emma Rowley on Twitter][5]
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[Comments][6]
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**Follow our [Budget 2011 live][7] coverage for the latest news on the [2011
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Budget][8]. **
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The retail prices index (RPI) measure of inflation hit a 20-year high in
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February, while the public sector borrowed a record amount, casting a pall
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over George Osborne's latest tax and spending plans.
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The data flagged up the risks around the recovery as over-target inflation
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combines with sluggish growth.
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"There is a fine line between controlled higher inflation and high inflation
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controlling the economy," said Emma Wilson at exchange firm Currency
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Solutions. "We are standing on that line right now."
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The Government's preferred measure of inflation, the consumer prices index
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(CPI), shot to a 28-month high of 4.4pc from January's 4pc, the Office for
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National Statistics said, ahead of expectations it would come in at 4.2pc.
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## Related Articles
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* [Budget 2011 checklist: key points to watch for][9]
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23 Mar 2011
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* [Philip Aldrick: Britain's economic balancing act][10]
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22 Mar 2011
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* [George Osborne's chance to show his true colours][11]
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23 Mar 2011
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* [Budget 2011 preview][12]
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22 Mar 2011
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* [Budget 2011 will be the Little Red Book of Calm][13]
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22 Mar 2011
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* [March 24: reaction, analysis][14]
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24 Mar 2011
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The jump signalled that inflation is running at more than double the 2pc
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target and well above the average pay deal, meaning many are experiencing
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effective pay cuts.
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The RPI gauge, which some see as a better reflection of the cost of living as
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it includes more housing expenses, leapt from January's 5.1pc to 5.5pc, the
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highest since 1991.
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The growing cost of heating homes and buying clothing was behind the month-on-
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month CPI leap, while fuel and food remain the major long-term price
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pressures.
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The feed-through of the Government's decision to raise the VAT sales tax in
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January is aggravating the situation, said economists.
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"With 20-20 hindsight the VAT increase … was at best mistimed and at worst a
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major error," warned the Centre for Economics and Business Research, a think-
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tank.
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To meet the Bank of England's central forecast that CPI will be 4.1pc in the
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current quarter, the rate would have to drop back to an "infeasible" 3.8pc for
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March, according to Philip Shaw at Investec.
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Meanwhile, the public sector's net borrowing - stripping out the cost of
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bailing out the banks - hit £11.8bn in February, a record for the month, up
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from £9.5bn the year before.
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Economists had thought that the figure would shrink, but the tax take
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disappointed.
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Mr Osborne still looks on track to undershoot the Office for Budget
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Responsibility's £148.5bn forecast for borrowing for the full year, but with
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less headroom than hoped.
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With one month left, he looks set to undershoot the target by £6bn rather than
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the £8bn recently hoped, said the Ernst & Young ITEM Club.
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Going ahead, inflation threatens the Coalition's plans to reduce the budget
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deficit, if the squeeze on consumers' spending power - and the knock-on effect
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on company profits - reduces the money coming into the taxman.
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Minutes for the March meeting of the Bank's Monetary Policy Committee, out on
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Wednesday_** **_could show the inflation worry pushed another member of the
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nine-strong panel to vote for an immediate rate rise, taking the split to four
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in favour and five against.
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Opponents fear higher rates could derail the recovery, since growth should
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slow further as public spending cuts hit in full.
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Just one in ten Britons expects the economy to strengthen in the next six
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months, according to a new Ipsos MORI survey.
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Meanwhile the Organisation for Economic Co-operation and Development reported
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that the recent oil price spike could shave half a percentage point off growth
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across the world's advanced economies by 2012.
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[X][15] Share & bookmark
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Digg Fark LinkedIn Google Buzz StumbleUpon Y! Buzz
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[What are these?][16]
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* Share: [Share][15] [ ][17] [ ][18]
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[Tweet][19]
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http://www.telegraph.co.uk/finance/budget/8399039/UK-economy-delivers-double-
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blow-to-George-Osborne-ahead-of-Budget-2011.html
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Telegraph
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## [Budget][8]
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* ### [Finance »][20]
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* ### [Economics »][21]
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* ### [Business Latest News »][22]
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* ### [Emma Rowley »][3]
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In finance
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[![][23] ][24]
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### [Matt's Budget cartoons][24]
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[![Budget graphic][25]][10]
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### [Britain's balancing act][10]
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[![Budget 2011 text in wordle][26] ][27]
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### [Top Budget words][27]
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[![George Osborne Budget; Budget 2011 in quotes][28] ][29]
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### [Budget 2011 in quotes][29]
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[X][15] Share & bookmark
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Delicious Facebook Google Messenger Reddit Twitter
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Digg Fark LinkedIn Google Buzz StumbleUpon Y! Buzz
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[What are these?][16]
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Share:
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* [ ][15]
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* [ ][17]
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* [ ][18]
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* [Tweet][19]
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* Advertisement
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![][30]
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telegraphuk
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Please enable JavaScript to view the [comments powered by Disqus.][31] [blog
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comments powered by Disqus][32]
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## [Budget 2011 »][8]
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[Budget 2011: reaction and analysis][7]
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[Budget key points][33]
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[Budget 2011 winners][34]
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[Budget 2011 losers][35]
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[How will the Budget affect me?][36]
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