The British government has just delivered one of the toughest budgets in living memory, signaling that the borrow and spend lifestyle enjoyed under New Labour has finally hit the wall.
With the GDP running at 11%, Britain's budget deficit mirrors that of the club med countries such as Greece as the previous Labour government borrowed, printed and spent in an attempt to remain popular and keep their precious seats in Parliament. The new chancellor is looking to cut the GDP to just 1% over the next five years, for a reduction of approximately £135 billion. Anyone who has watched the sit-com 'Yes Prime Minister' will be aware that this move is easier to talk about than to actually implement, so we will see in twelve months time just how far the UK has progressed along this path of austerity.
Of note, is that VAT will be increased to 20% from 17.5%, higher taxes, benefits to be cut and slashing spending such as departmental budgets to decrease by 25% in real terms over the next four years. So, the two million or so new jobs created under the previous government are now under threat, a saving of 25% must surely involve the loss of jobs for some. We can only hope that these people can find some entrepreneurial spirit and find something useful to do. There is also a two-year public sector pay freeze along with £11 billion in cuts to welfare spending, including a three-year freeze on child tax credits.
The Chancellor, George Osborne, emphasized the taxpayers' huge liabilities in terms of public-sector pensions commitments, whereby the country would need to find billions of pounds a year by 2015.
Fitch Ratings commented that the U.K.'s emergency budget should materially strengthen confidence in the country's public finances and its triple-A rating providing the government can deliver on its planned measures. Well, its a question of wait and see, but those words should help to reduce the possibility of a downgrade.
"The specific measures announced today are substantial and enhance confidence in the U.K. public finances," Fitch said.
Finally, listening to discussions on various UK Radio stations the commentators reckoned another 500,000 people will be made unemployed over the next six months. The party is definitely over with the hangover cure being administered by the new government. In our opinion this had to be done and hopefully the UK will come out of it fitter and slimmer, however, in the short term it will be very hard indeed all round.
Its not just the UK thats up against it, you are going to here that word austerity more and more wherever you are.
Have a good one.
Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.
The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:
On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.
On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.
Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.
Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.
To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)
For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.
For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.