IT’S GOOD NEWS WEEK

IT’S GOOD NEWS WEEK

Once again, it looks like the poorest will pay the price of economic downturn

The UK trade's deficit with the rest of the world for December came in worse than experts predicted, Office for National Statistics figures show.

The shortfall on trade in goods was £7.574bn in December, down from £7.910bn in November, showing an overall rise in 2007, for the UK's deficit on goods and services £51bn from £46.4bn.to £51bn.

These figures paint a pretty bleak economic outlook for the UK in 2008.

We are already being affected by the price inflation of goods leaving UK factories, which has reached its highest rate in 16 years, driven higher by petrol and food costs.

Prices paid by factories for their raw materials surged by 18.7% in the 12 months to the end of January, with average petrol prices rising by 1.3p in January to stand at 103.9p per litre.

As well as higher oil and wheat prices, the fall in the value of the pound in recent months pushed up the cost of other raw materials.

The rising prices will alert the Bank of England’s policymakers to the increase of inflationary risks - which could translate into higher wage demands.

The Bank aims to hit the government's consumer price inflation target of 2% and signs of rising factory gate inflation will make it tougher for it to justify further rate cuts, despite the slowing economy.

As a result, Strood residents could potentially fail to receive essential services such as healthcare and education, as the Government further reduces funding to our area. Additionally, those on low or fixed incomes such as our pensioners will have to make stark choices, between the heat and medicines they need or fuel and food with escalating prices.

BUT CHEER UP, SO FAR I’VE ONLY TOLD YOU THE GOOD NEWS.

The Institute for Fiscal Studies has warned that the government needs to raise taxes by £8bn to meet its fiscal targets over the next two years, after running a large budget deficit during the boom years.

The 2008/9 budget is still a month away, with slower economic growth pushing tax revenue below target and forcing the government to borrow more.

The Chancellor has already, in his pre-budget report, begun the preparations for a tougher economic climate – "planning to increase the tax burden to a 24-year high and cut public spending to an 8-year low" on the IFS calculations.

This means that, over the next five years, 48% of the extra national income generated by economic growth will be taken as tax, rather than given away as gradual tax cuts as this and previous governments have tended to do.

So to preserve Gordon Brown's political stature, Mr Darling may have to break with his past fiscal prudence more dramatically than either foresaw on taking office last year.

However, do not expect the Chancellor to reach for the £8bn of tax increases that would be needed to restore the shortfall immediately.

The targets of capping public debt and balancing the budget, will be re-adjusted in order to hide the true position. Expect an argument that unusual world economic slowdown justifies a loosening of policy in 2008 – even though, this cycle may (like the last) have to be ten years long for public finances to get back on the intended track.

After all, no Government (even Mr Prudence, Gordon Brown’s), wants a slowdown, or housing market slump, with only two years to go before the next election.