• King's warning on budget deficit. On 24 June, giving evidence to the Commons Treasury Select Committee, the Governor of the Bank of England, Mervyn King, said that the Chancellor needs to set tougher goals to reduce the ‘extraordinary' UK public deficit. He said: ‘There'll need to be a plan contingent on the state of the economy to show how this deficit will be brought down to reach levels below those in the Budget figures'. He also said: ‘I feel more uncertain now than ever, because it's not a pattern of a recession coming into recovery that we've seen since the 1930s... There are genuine concerns about how quickly the recovery will pick up - looking at the clear evidence, (firms) are finding it hard to access credit from the banking system. A combination of that and real uncertainty over the global economy makes it very difficult to be confident of a rapid recovery' (Press Association, 24 June 2009).

• LTT: Wednesday was demolition day for Gordon Brown's tax and spending policies. In the morning, new figures showed Britain facing the biggest deficit in the world; at lunchtime, the Prime Minister's attempts to defend himself in the Commons ended in ridicule; and in the afternoon, the Governor of the Bank of England delivered the coup de grace bydemolishing for good any claim that this discredited Government ever had to a credible plan for the recovery.

•·         The judgement David Cameron and George Osborne took last Autumn to warn of Britain's looming debt crisis, and this summer to be honest about the need for spending cuts, has been entirely vindicated. We urgently need an election to rescue this country from a Government whose denial is a danger to the recovery.

•·         OECD warning on public finances.  Also on 24 June, the Organisation for Economic Co-operation and Development (OECD) announced that the UK's budget deficit is expected to rise to 14 per cent of GDP in 2010 - the highest level in the developed world and far higher than the average of 8.75 per cent in the 30 most developed economies.  The OECD warned that the UK's public finances ‘have deteriorated sharply' since the beginning of the recession and said the state of the UK's balance sheet meant the possibility of extra stimulus to the economy had to be ruled out.  The report also predicted that UK unemployment, which currently stands at a 12-year high of more than 2.2 million, will ‘rise substantially' and ‘labour market conditions will remain unfavourable for a long period' (Press Association, 24 June 2009).

•·         LTT:  The OECD figures show just how deep Labour's debt crisis is and reinforces the warnings on debt we Conservatives have been making all through this crisis, and which Gordon Brown is still in denial about.  The projected record budget deficit is worse than the Treasury forecast, the worst in the developed world and double what it was when Dennis Healey had to go to the IMF.

• The UK is in "a sharp recession", the OECD says, with output set to decline by 4.3% in 2009, worse than its previous forecast of a 3.7% fall. The OECD predicts zero growth in the UK economy in 2010, and says the UK budget deficit will reach 14% next year - both worse than UK government estimates. It says the pace of the global downturn is now moderating after the sharp drop in the six months to March, but it still expects world output to shrink by 2.2% this year. However, this is the first time for two years it has revised upwards its overall economic forecasts, especially for 2010, with the economies of Japan and the US now expected to decline less sharply than projected in its previous report. It says the advanced economies will return to weak growth of 0.7% in 2010, compared with its previous forecast of a contraction of 0.1%.

UK                  2009 -4.3%;     2010 0.0%

USA                2009 -2.8%;     2010 0.9%

Eurozone        2009 -4.8%;     2010 0.0%

Japan              2009 -6.8%;     2010 0.7%

OECD            2009 -4.1%;     2010 0.7%

World             2009 -2.2%;     2010 2.3%

Source: OECD Economic Outlook

• Guardian - Tories planning ‘emergency cuts Cabinet'.  On Thursday 25 June, The Guardian published a report saying that, if the Conservatives win power, George Osborne is planning to stage a two day emergency cabinet session soon after the election at which cabinet members would be collectively bound into large-scale spending cuts.

• LTT: David Cameron and George Osborne have already made it clear that if we win the next election, we will take spending decisions on a collegiate basis. Any incoming Cabinet would have to make choices about its spending priorities, and we would seek to make these choices collectively. The details of this process have not been decided, and so any media reports are pure speculation.

• BBA lending figures: Mortgage approvals by the UK's major banks have continued the steady rise of the last six months. The number of approvals for house purchases rose to 31,162 in May, up 15.8% compared with the same month a year ago. But the British Bankers' Association (BBA) data also shows that borrowing on credit cards has dropped owing to householders' economic uncertainty. Despite the rising number of approvals - a signal of future activity in the housing market - the BBA said that the mortgage picture remained subdued overall. Net new mortgage lending, of £2.3bn in May, was again at its lowest level since March 2001, having fallen from £2.5bn in April.

• A report by ratings agency Fitch has suggested that, owing to falling prices, 23% of borrowers in the UK could face negative equity by the time property values hit their trough. If its peak-to-trough prediction of a 35% drop in house prices was correct, Fitch said that - by value - a third of all home loans would be in negative equity. The areas already most affected were Northampton, Nottingham and Derby, the ratings agency said.

• Lord Turner, chairman of the FSA has said "we do have concerns" about executive pay. He was asked by the House of Commons Treasury Committee whether RBS chief executive Stephen Hester's pay package means it is "business as usual". Declining to discuss the specific deal, he said that he had seen "very aggressive hiring going on in investment banks". On Monday, RBS approved a pay package worth up to £9.6m for its boss. Lord Turner stressed that Mr Hester's pay was a matter for the government, not the FSA. RBS issued a statement on Tuesday defending the deal. "We now have support for a remuneration plan that ensures the majority of Stephen's reward is non cash and based on his performance," said RBS chairman Sir Philip Hampton. "The long term incentives are worth little or nothing without a strong return to shareholders and there is no reward for failure in our remuneration policy."

• CML makes a positive revision to its repossession forecasts. The Council of Mortgage Lenders today updated its housing market forecast for 2009. It has led to the CML reducing its forecast for repossessions for this year from 75,000 to 65,000. The outlook for net lending appears less negative than previously forecast, and the CML now expects net lending to fall by only around £5 billion, compared with the £25 billion contraction previously anticipated.

• Royal Bank of Scotland is this week expected to approve a pay package worth up to £9.6m for its chief executive Stephen Hester. The remuneration deal was agreed on Friday by RBS chairman Sir Philip Hampton and its leading shareholders. One of the groups represented was UK Financial Investments, which manages the 70% stake in RBS held by taxpayers. The package is made up of £1.2m in pay, up to £2m in non-cash bonuses and up to £6.4m in long-term incentives. The long-term incentives will only be payable if share price targets are hit over the next three years.

• The World Bank says the economies of developing countries are expected to grow by just 1.2% this year, compared with 5.9% in 2008 and 8.1% in 2007. And if China and India are excluded, gross domestic product in developing countries is projected to fall by 1.6%. Its annual Global Development Finance report warns of possible joblessness and poverty in developing nations. It also forecast the global economy as a whole would shrink by 2.9% this year, against an earlier prediction of 3%.

• The president of the European Central Bank has said governments that have borrowed heavily to fight the economic crisis should not accumulate any more debt. Jean-Claude Trichet said existing stimulus packages were "sufficient". "There is a moment where you cannot spend more and accumulate more debts. We are at that moment," he said.

• Firms in Germany, Europe's largest economy, are more confident now than they have been for seven months, according to a key index. The Ifo index climbed for the third month in a row to 85.9 in June from 84.2 in May - better than many analysts had been expecting. This confirmed that the German economy was "gradually stabilising", Ifo said. However, Ifo economist Klaus Abberger said that Germany had not yet reached the turning point towards recovery.

• More than half of UK jobs created in the business services sector during the past five years will be axed by 2011, a CEBR study suggests. About 334,000 jobs will be lost in the sector because of the credit crunch and recession, the Centre for Economics and Business Research (CEBR) said. Firms who worked for the public sector would suffer as spending by government bodies was tightened, it added. The advertising industry is likely to be hardest hit, the CEBR said. It forecast that this area alone would shed 15,000 jobs during the period, after suffering revenue drops of almost 4% in 2008.

•·         Record borrowing:

•o   The Government is predicted to borrow £175 billion this year - the highest as a proportion of GDP on since the war.

•o   In 2009, the national debt as a proportion of GDP will be the highest since the war.

•o   The Government is borrowing more over the next two years than the entire debt it inherited from all previous Governments put together. The national debt will double to £1.4 trillion.

•o   The Governor of the Bank of England, Mervyn King, has said: ‘We entered this crisis with levels of public borrowing which were too high and that made it difficult' (Evidence to the Treasury Select Committee, 26 February 2009).

•·         Ordinary families will pay for Brown's borrowing.  The Institute for Fiscal Studies has confirmed that:

•o   From 2011-12, those earning more than £20,000 a year will pay more in NICs and income tax.

•o   By 2011-12, the average household will be £385 per year worse off than they would have been under the 1997 tax and benefit system:

•§  Two earner families with children will be £1,467 per year worse off.

•§  Two earner couples without children will be £2,209 per year worse off.

•o   The IFS has also said that there is a £45 billion ‘unexplained' fiscal tightening in the Budget projections. This is equivalent to £1,430 in additional tax rises per family.

•·         Labour are no longer credible on public spending. Despite repeatedly attacking the Conservative Party for threatening ‘savage' cuts, Alistair Darling has admitted that he is making his own cuts:

• Alistair Darling: ‘I have cut overall public spending' (The Today Programme, 23 April 2009)

•·         The Government's VAT cut is the wrong approach. The CBI's retail survey, which covered the first ten days of the VAT cut, shows the worst downturn in retail activity since record began. Cutting VAT has been criticised by other countries. The French Finance Minister has said: ‘As far as we're concerned...we're not certain that when prices go down, a VAT reduction is that effective' (BBC, WATO, 26 November 2008). The German Social Democrat Budget Spokesman has said ‘I think the sales tax cut is counter-productive' (The Independent, 13 December 2008). The Chief Economist of the IMF, Oliver Blanchard, has said: ‘Temporarily cutting VAT, a measure that was adopted in Great Britain, does not seem to me to be a good idea... 2 per cent less is not perceived by consumers as a real incentive to spend' (The Daily Telegraph, 24 December 2008). 

Key statistics

GDP growth - published 24 April 2009 by ONS

•·         - 1.9 per cent in Q1 2009, the worst figure since 1980.

•·         Alistair Darling was only predicting 1.5 per cent.

•·         In June 2009, HM Treasury's average of independent economic forecasts of GDP growth for 2009 was -3.7%, up from -3.8% in May.

Repossessions - published 22 January 2009 by FSA

•·         The number of repossessions in the third quarter of 2008 was 13,161, up 92 per cent compared with a year earlier.

•·         The number of homeowners behind with their mortgage repayments had jumped to 340,000, a rise of 24 per cent from a year earlier and 10 per cent higher than in the previous quarter.

Unemployment - published 17 June 2009 by ONS

•·         ILO unemployment = 2.3 million (over Feb - Apr), up by 232,000. This is the highest level 1996.

•·         Unemployment rate = 7.2 per cent, up from 7.1 per cent.

•·         Claimant count = 1.54 million, up by 39,300.

Government debt - published on 18 June 2009 by HM Treasury

•·         Government debt = 54 per cent of GDP - higher than when Labour came to power in 1997 (it was 42.5 per cent in May 1997).

•·         Public sector net borrowing was £87.6 billion in 2008/09 and is forecast by the Treasury to be £175 billion, 12.4% of GDP, in 2009/10.

Inflation - published 16 June 2009 by ONS

•·         CPI inflation = 2.2 per cent (May), down from 2.3 per cent.

•·         RPI inflation = -1.1 per cent (May), up from -1.2 per cent