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UK austerity measures “unsustainable” says George Soros

George Soros, the billionaire investor and hedge fund manager, gave his views on the UK’s economic policy at the World Economic Forum in Davos in Switzerland yesterday.

He is quoted as saying that although he thought the UK government was right to start making cuts he also thought the plans would have to be modified. He said: “I don’t think they can be implemented without pushing the economy into a recession. My expectation is that it will prove to be unsustainable.”

These comments followed the announcement yesterday that UK GDP fell by 0.5% in the final quarter of 2010.

George Soros says that the UK austerity plans "will prove to be unsustainable".

George Soros is generally listened to as he is  known as “the man who broke the Bank of England”. This was due to a financial position which he took up in 1992, believing that the UK government would not be able to sustain sterling in the Exchange Rate Mechanism, which involved the need to keep the pound above a floor value. On the famous Black Wednesday the government was forced to remove sterling from the ERM which led to a devaluation of the currency. George Soros was said to have made over $1bn as a result of his actions in the market.

His concerns about the UK austerity measures was taken up by John Evans, general secretary at the Trade Union Advisory Committee to the Organisation for Economic Cooperation and Development (OECD) who also spoke at Davos saying: “What I don’t see happening and what you need is a medium term strategy to get people into jobs. I see the UK’s austerity as a vicious circle, not a virtuous circle.”

The UK government has come under increased attack by opposition and trade union leaders recently, because whilst majoring on expenditure cuts to reduce the fiscal deficit, they are not putting forward plans to restore economic growth. In November, the Trades Union Congress criticised the government for delaying the proposed White Paper on growth, and also their plans to downgrade it to a discussion paper instead.

Whilst accepting the need for fiscal stimulus, George Soros was critical that previous fiscal injections had concentrated on boosting consumption. He felt that this only perpetuated the problem and that any further stimulus should be used to improve competitiveness with more expenditure on infrastructure.

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Posted in economic growth, Exchange Rates, Fiscal stimulus, government borrowing, government spending

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