George Osborne's gloomy outlook

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So, chancellor George Osborne thrilled the nation with his Autumn Statement on Tuesday -- but what was in it that will affect investors?

Well, for those who like to look for small cap growth bargains, the newly announced "credit easing" plan might provide a bit of a fillip. Under it, the government will earmark £40bn for helping to underwrite bank loans for small companies.


Easier loans

Only those with a turnover of less than £50m will be eligible, but it should help lower the interest rates they have to pay for the cash they need to get their businesses growing. Currently, even with the two phases of quantitative easing we have had, smaller businesses are still being seen as high risk by many lenders, and they're having to pay too much in interest.

For medium-sized companies, there will be a £1bn "business finance partnership", though it's unclear what such a relatively small sum will achieve.


"Celebrating with Sebastian has become a very fun thing to do, so I am totally fine with us winning the ROC Nations Cup again – the problem then usually is the party afterwards which kind of compromises the next day a bit..."

"Celebrating with Sebastian has become a very fun thing to do, so I am totally fine with us winning the ROC Nations Cup again – the problem then usually is the party afterwards which kind of compromises the next day a bit..."

"Celebrating with Sebastian has become a very fun thing to do, so I am totally fine with us winning the ROC Nations Cup again – the problem then usually is the party afterwards which kind of compromises the next day a bit..."

Another move will help those who want to invest in new startup businesses, but who are concerned about the whole risk/reward thing in these unpredictable times. If you have up to £100,000 to pump in, from April next year you will get 50% income tax relief on your earnings -- and just for 2012, you'll pay no capital gains tax.

Hit the banks

Talking of banks, it looks like they're still being blamed for the liquidity crisis and are being squeezed even harder for cash. For the third time this year, the banking levy is going to be increased -- to 0.088% of what banks borrow. The reason? Simply because it hasn't been raising as much money as the government wants, and presumably the bankers' pips aren't squeaking yet.

But these events were largely overshadowed by the dark clouds of the economy, with not much in the way of daylight yet being apparent on the horizon.

Downgraded growth estimates

The UK's economic growth, previously forecast at 1.7% for this year, which would have been a nice start to our post-recession recovery, has been downgraded to 0.9%, with worse to come next year. For 2012, predicted growth has been cut from 2.5% to just 0.7% -- the worrying thing there being the reversal of the trend, with next year slowing down rather than improving.

The government is apparently now expecting 2.1% growth for 2013, with 2.7% and 3% for the subsequent two years -- but with early guesses usually being massively revised closer to the time, those figures are really of no more value than goat entrails right now.

The whole situation will put more pressure on the government's purse than previously expected, resulting partly in a public sector pay rise cap of 1% for two years after the end of the current freeze. Apparently the unions are moaning about it, but 1% is more than a lot of people in the private sector are going to get -- apart from the fat cats at the top, of course.

More borrowing

This all going to cost money, and the government is also going to need to borrow £111bn more than previously expected over the next 5 years, with the 2011-12 total now thought to come in at £127bn, but then it should start falling -- down as low as £53bn by 2015-16. Although by then, we could easily have a different bunch of spenders at the helm, so it's a pretty meaningless forecast right now.

Government spending to stimulate the economy during downturns is at the bedrock of Keynesian economics and is generally thought to be a good thing -- it's just a shame that the public coffers were left so bare during the previous boom times.

Some of the extra borrowing will go towards investment in new infrastructure, including transport, and housing construction projects.

What does this all say?

Well, on the one hand, it does paint a pretty bleak economic picture -- and it does make some assumptions, such as no disintegration of Europe, for example. And that suggests we shouldn't be expecting the stock market to start off on a new bull run any time soon.

Alan Oscroft

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