UK's New Era: Fiscal Consolidation and Monetary Stance

[Forex-Outlook]

The Conservative-Liberal Democrat coalition released a document listing major agreements reached between the parties. What the market cares the most are the fiscal-consolidation plans. Before the alliance, Conservatives and Lib Dems had diverged views on the pace of cutting deficits. While the Conservatives preferred to cut deficits, primarily through spending cut, as soon as in 2010, Lib Dems sought to adopt a progressive way and begin fiscal tightening in 2011/12, with the spending cut/tax hike ratio around 2.5/1. However, the parties eventually agreed that a 'significantly accelerated reduction in the structural deficit over the course of a Parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes'.

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