YP75: Economists counter experts' call for increased spending cuts

The UK's budget deficit was back in the spotlight last week as an open letter from a group of prominent economists, led by six professors at the London School of Economics, was published in the national media. The letter called for a detailed deficit reduction plan with the majority of fiscal tightening being made through significant cuts to government spending.
By The Newsroom
Published 23rd Feb 2010, 11:37 BST
Updated 23rd Feb 2010, 11:38 BST

The debate was stepped up when an equally high-profile group of economists, including former Monetary Policy Committee member David Blanchflower, countered that any significant cuts to public spending or any major increases in taxes will undermine an already fragile economic recovery.

Away from the UK economy, European and US equity markets rallied last week despite the US Federal Reserves decision to raise the rate at which commercial banks can borrow from the central bank.

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The move led to a strong rally in the US dollar and Treasury markets as speculation increased that further increases may be forthcoming. The S&P 500 rose by 3.1 per cent over the week while the Eurofirst 300 posted its biggest weekly gain since July, rising by nearly 4 per cent.

Marine and offshore oil and gas safety equipment group Cosalt has been awarded a further three-year extension to its existing contract with global engineering firm Aker Solutions. The deal is worth 1m per year and the contract allows for the possibility of a two-year extension. Cosalt will continue to deliver all tooling and lifting equipment for Aker Solution's North Sea operations.

Climate enthusiasts will be disappointed by the reported announcement that Drax, which owns the UK's largest power station, has withdrawn a pledge to cut carbon-dioxide emissions at the site near Selby. The group had intended to replace coal with biomass fuel and had established a state-of-the-art biomass processing unit, but reports in the national press last week indicated that chief executive Dorothy Thompson was running the facility significantly below capacity because of a lack of subsidy support from the Government.

Drax states that production through biomass typically costs three to five times more than traditional coal firing.

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Electronic Data Processing, which provides IT solutions to independent timber and building merchants, updated the market stating that it expects trading levels to rise as and when the economy shows signs of a sustained recovery. However, initial signs of increased activity across the group's markets have still to translate into increased sales.

Infrastructure company Jarvis, based in York, expects to report an operating loss of 5m for the year ending March 31 as trading for the year has fallen below management expectations.

This compares to a loss for the previous year of 3.7m. The company has had a year to forget primarily due to Network Rail's decision to postpone a five-year investment plan.

David Cadwallader, Assistant Investment Manager at Brewin Dolphin, Leeds