Job Losses Outweigh Speed of Recovery; ECONOMIC ANALYSIS

The Journal (Newcastle, England), March 24, 2011 | Go to article overview

Job Losses Outweigh Speed of Recovery; ECONOMIC ANALYSIS


Byline: PETER McCUSKER

THE Budget may have served up a lot of help for businesses but experts are not convinced it will balance out the effect of the public sector job cuts on the speed of the country's economic recovery.

And one senior figure believes there is still a danger of a double-dip recession.

Hugh Metcalf, a senior lecturer in economics at Newcastle University Business School, said: "Basically what the Chancellor is saying to the North East is this 'you are a tough and resilient lot and we are now going to test that resilience to the limits'."

"This is a mixed budget for the North East, there is some good news and some bad news, but it has not removed the fears of a double-dip recession."

Metcalf welcomed the region's two Enterprise Zone designations and the additional help for manufacturers in the form of an increase capital allowances and export credits.

But he added: "While the region's manufacturers are performing well this was due to the relatively low price of Sterling.

"But the pound has strengthened in recent months in relation to the dollar. It has risen by some 15% and this may well hamper the region's exporters over the coming months. Any increase in price of sterling is going to make us less competitive.

"The amount of jobs that may be created by the success of our manufacturers and exporters is in too small a scale to compensate for the thousands of jobs that will be lost in the public sector."

Metcalf welcomed the Firstbuy scheme to encourage first-time buyers into the market saying it will help boost the region's construction sector. But he added: "This is not going to compensate for the loss of contracts in building new schools and hospitals."

Metcalf says there is enough margin for error in the Office for Budget Responsibilities' forecasts to raise concerns the North East may suffer from a double-dip recession.

"With inflation at 5%, the recent increase in VAT, and the severe public sector cutbacks there is going to be a significant fall in consumption across the region.

"This is not going to be compensated for by private sector investment and growth. …

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