The latest figures have shown that during the first quarter of 2012, the economy shrank by 0.2 percent, which follows on from the contraction of 0.3 percent during the final quarter of 2011 – which officially is defined as a double-dip recession.
Many economists had expected the UK economy to avoid a double-dip recession, however a three percent fall in construction output – the biggest fall in three years – coupled with slow service sector growth; has caused the economy to struggle.
The Office for Natiaon Statistic's preliminary estimates of GDP are the first released within the European Union, and are based partly on estimated data. On average, they are revised by 0.1 percentage points up or down by the time a second revision is published two months later
However, in further bad news for the Treasury, the Bank of England, have warned that there is a risk of another contraction during the second quarter of 2012, due to an extra public holiday; and unlike the previous two quarters, the Bank of England do not appear keen to provide further monetary stimulus through quantitative easing asset purchases.
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Official figures show that although the government, despite borrowing more than expected last month, have still managed to hit their borrowing target over the year.
The Office for National Statistics have revealed that during March, public sector net borrowing, excluding interventions such as bank bail-outs, came in at £18.2 billion. However, because previous months' borrowing had been revised down, the government still met its target of £126 billion for the year.
The borrowing from the government during the last year was down from £136.8 billion the previous year – which was significantly helped by downward revisions in the previous 11 months.
A Treasury spokesperson said: "Today's data shows that the forecast for 2011/12 is on track, with public borrowing down by £11 billion compared to the previous year.”
Economists believe the government will have a tougher task meeting forecasts to reduce borrowing to £120 billion during the current financial year; mainly as a result of the economy still struggling and unemployment rising; which is expected to hurt tax revenues and increase benefit payments.
Despite the forecast for the next twelve months being gloomy, the government is aiming to eliminate the deficit by 2016 / 2017; with the Treasury spokesperson adding: "This shows that the government's plan to reduce the budget deficit is working."
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Chief Secretary to the Treasury, Danny Alexander, is set to outline changes in a speech later today, which will see Whitehall’s spending subjected to greater scrutiny by the Treasury.
As part of the Treasury’s “fiscal discipline” plans, to tighten financial management of government departments, Mr Alexander is requiring all government departments to monitor and share consistent information on spending with him every month; and the changes are set to be introduced in a bid to stop the UK economy from getting into a “mess” again.
Along with introducing the plans to monitor Whitehall’s monthly spending, Mr Alexander will also ask each ministry set up “rainy day” funds worth five percent of their budgets to meet unexpected spending commitments; or pay for emerging policies rather than come to the Treasury for help with overspending.
Within his speech at the Institute for Fiscal Studies, today, Mr Alexander is expected to tell the delegates: “These new controls are not just a tweak to the Whitehall machine.
“They are another signal of our unwavering determination to deliver the fiscal consolidation we promised. For too long financial management in government has been stifled by poor information-sharing and poor incentives.
“From now on, all departments must monitor and share spending information with the Treasury on a monthly basis. And that data must be consistent.”
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The Chancellor, George Osborne is said to be under increasing pressure from the International Monetary Fund (IMF) to provide more loans to help global economies which are in trouble.
Finance Ministers from the G20 Group of leading economies have met in Washington to discuss boosting the IMF’s resources, after it was revealed that IMF managing director, Christine Lagarde, wants to boost the organisations lending capacity by £250 billion.
The call by Lagarde to increase the IMF pot is understood to have put increasing pressure on the Chancellor to contribute more, with Lagarde herself saying: “The UK is a founding father of the IMF. And the UK is there for international grave situations. It's always been a very loyal partner when it's tough.
“But it's in their interest. Because if the key partners of a country like the UK are in very bad shape, they are bad clients. It's not in the interest of the UK to have a weak Euro.”
Previously, the Chancellor admitted that “there is a case" for increasing the IMF pot, saying he would have to "think very hard" about rejecting any request; although he did warn the IMF that the UK stands ready to boost its contribution, but only if certain conditions are met.
It is understood, should the Chancellor feel it is appropriate, he is able to commit an extra £10 billion without approval from Parliament, although Treasury sources have stressed that any deal has to be done at a “global level” and it must meet strict conditions.
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Under a revised deal signed yesterday (April 18th 2012), tax evaders with secret accounts in Switzerland will pay more than originally planned to legitimise their holdings.
Revenue and Customs have demanded that Switzerland increase the maximum one off penalty imposed from thirty-four percent to forty-one percent; following a similar revision between the Switzerland Germany tax deal.
It is believed that the change in legislation will significantly increase the tax take received from the Swiss deal, with sources claiming the total revenue will be above the Treasury’s previous estimates of between £4 billion and £7 billion.
The amendments to the deal will see the minimum rate payable for the one-off penalty increase from nineteen percent to twenty-one percent; whilst higher rates will increase to the full forty-one percent – which will apply depending on the size of the account and the rate of capital growth.
Under the deal, which was introduced in the Finance Bill, those who have previously avoided paying tax will be given the opportunity to regularise their affairs by paying the one-off penalty payment, followed by withholding tax on future income on their accounts.
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