The UK economy is recovering from the biggest financial crisis in generations. Prior to the crisis, underlying competitiveness fell and economic growth was driven by unsustainable levels of debt. The June Budget 2010 set out the Government's plan to reduce the deficit and rebuild the economy. The actions taken restored stability, reduced market interest rates to record lows and set in place a plan to build a stronger and more balanced economy for the future.
Since then, the UK economy has been hit by a series of shocks which have significantly weakened the economic and fiscal outlook:
• higher than expected inflation, driven by a sharp increase in global commodity prices - the Office for Budget Responsibility (OBR) consider this to be the main reason the economy has grown more slowly than expected since the June Budget 2010;
• the euro area crisis has increased instability and uncertainty - this is feeding through to household and corporate spending decisions and to tighter credit conditions across the world; and
• most significantly for medium-term growth prospects, the full scale and persistent impact of the 2008-09 financial crisis has become clearer - the OBR has now significantly revised down its projection of the trend rate of growth by a margin consistent with previous financial crises.
The intensifying sovereign debt crisis shows how important it is for the Government to implement its deficit reduction plan and maintain the UK's position as a safe haven. The Government is therefore taking action in the Autumn Statement to ensure it continues to meet its fiscal targets and protect the economy.
The Government will deliver permanent reductions in spending, using the savings over the Spending Review period to fund infrastructure investment critical to growth and to support social mobility. The Government will complement the monetary activism of low interest rates and quantitative easing by launching a package of credit easing measures to protect the flow of credit to smaller and mid-sized businesses. Finally, the Government will accelerate its supply-side reforms to support enterprise and create a balanced model of economic growth in the medium term.
The Autumn Statement sets out the actions the Government will take in three areas:
• building a stronger economy for the future; and
• fairness.