25 Return of Growth and the Deficit While UK government borrowing is on a downward track, the recent growth rates that show a recovering economy may not be enough to reduce the government’s deficit at a faster rate. Government current spending in April-–

July was 4.3 per cent up on a year ago, which is an odd form of austerity. Much of this is local authority spending which is bringing forward capital spending plans. Weak earnings depress tax revenues and also corporations have become adept in avoiding taxes. However, stronger growth in 2013 will feed into revenues and the deficit could come in lower than forecasted by the Office for Budget Responsibility.

Source: Sunday Times, 25 August 2013 Explain how the UK government’s budget deficit and the stronger economic growth influence the loanable funds market in the UK.