The Budget – a glass half empty or half full?

This week’s emergency budget delivered by George Osborne was both significant and clever.  Significant for the dramatically new direction it has set out for the future of the UK and clever for the way in which funds were found to finance specific new activities.

Depending on the viewpoint you have, you will see the measures announced in quite different ways. 

For the markets – in capital, currency and credit – it has been seen as something of a gamble.  While they liked the clarity of a plan, there are some comments that he may have overdone the size of the deficit reduction.  The facts that the budget will actually lead to lower growth than previously forecast for 2010 with higher unemployment, a higher short term fiscal deficit and will result in a net deficit of well below 3% (the forecast is 1.7%) of GDP in 2015 provide evidence for the size of his additional discretionary fiscal tightening.

If you work in the public sector, the glass contains something of a spiked cocktail or at best some nasty tasting medicine. 

The battle lines are drawn ...

The two great opposing armies of economic thought and analysis are clearly ranged against each other. 

On the one hand are those advocating a positive role for government spending as a stimulus to support the economy out of recession and back to sustainable levels of growth.  On the other is the more market-oriented approach emphasising the inefficiency of government action and the way in which large levels of public spending can crowd-out private sector investment and activity. 

Behind the lines of combat there are some ideological differences...