The fiscal squeeze arrives

The £40bn of additional fiscal tightening announced in June’s emergency Budget takes the total tightening to some £128bn by 2015/16, the equivalent of some 8% of GDP. (See Chart.) With the private sector unlikely to compensate fully, we continue to think that this tightening will undermine the overall economic recovery. Consumers remain indebted, bank lending remains weak and prospects in the UK’s main trading partner, the euro-zone, look bleak. Several years of sluggish growth lie ahead.