The move towards conservatism is a reaction to the recent crisis, as more people worldwide felt that not enough regulation was exercised by the government to control risky instruments and markets. However, there is also a possibility that a more protectionist attitude may characterize the new administration, which may hamper economic growth. The more conservative economic policy may work either way; it could provide a more stable environment for business by eliminating risks, but at the same time it might limit business opportunities. Thus new directions must be carefully watched post-election.
According to the Wall Street Journal report, this year’s treasury’s budget deficit forecast, at 12.6%, remains to be the highest in the nation’s history, while forecasts for 2011 to 2011 economic growth appear to optimistic. Tax receipts remain weak because of the poor earnings level in both the business and household sectors of the economy (Norman, 2010). However, the Office of National Statistics reported that the UK economy actually grew by 0.1% for the last quarter of 2009, the first following six quarters of economic contraction. It may not be conclusive that the recession is ended, but it does provide a hopeful sign which may be confirmed in the coming quarters (Angus Reid, 2010)
According to Price (2010), the current high levels of US government debt is a cause for worry. The uncertainty in the possible outcome of the credit “tug-o-war” itself exerts pressure on the market to perform with greater volatility (erratic price movements). Price notes that the supply of gilts is moving upwards consistently, and together with it the UK’s credit fundamentals will continue to quickly deteriorate. What would be worse is the threatened debt downgrade from one of the ratings agencies. This could mean that the UK will be able to source additional debt only at higher interest