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(EstateNewsWire.com, November 21, 2012 ) Cheshire, United Kingdom -- A British Think-tank recently released information that showed Britain’s debt-to-GDP ratio will be 4.85% higher by the year 2013. The rise is said to be due to spending cuts and tax raises brought forth by the Coalition government.
While “normal” economic time, consolidation would lead to a decline in Britain’s debt pile, wherein central banks are already at a limit of what they can do in order to offset impact of cuts, says the think-tank.
"It is unclear whether 'exceptional' monetary easing measures will eventually translate into easier credit terms when banking systems remain so heavily impaired by trading book losses and persistent pressure on loan book assets," the report said. "In current circumstances, fiscal consolidation is indeed likely to be self-defeating."
The Nieser added that “Coordinated deficit cutting” spanning the EU was currently adding to the problems, due to trade ties inevitably leading to “spillover effects” in multiple countries within the region.
"Not only would growth have been higher if such policies had not been pursued, but debt-to-GDP ratios would have been lower," said Niesr economists Jonathan Portes and Dawn Holland.
"It is ironic that, given that the EU was set up in part to avoid coordination failures in economic policy, it should deliver the exact opposite."
The International Monetary Fund (IMF) stated that it had underestimated the negative effects of spending cuts and tax growth via increases earlier this month.
The IMF stated the efforts to cut into the deficits may have hurt growth due to it being too widespread, and thus could not be implemented quickly.
Portes stated, "What we have seen in Europe is the creation of a death spiral of deficit cutting, leading to reduced growth – which leads to reduced revenues and pressure to cut deficits faster. Paradoxically the EU was set up in part to avoid such problems by allowing members to co-operate to secure better outcomes," he said.
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