Arguably, such a tough budget is exactly what the UK needs to avoid a downgrade from the sovereign debt rating agencies, especially with the current crisis in southern Europe. If successfully implemented, the UK's net debt as a percentage of GDP would stabilise at just over 70% by 2013/14. However, our eagle eyed readers will have spotted that we do not think the Chancellor will meet his target. Though this is partly due to our view on growth prospects (more below), the most significant cause for the divergence is our view that the Chancellor will struggle to push through the spending cuts outlined in his budget. Indeed, even Margaret Thatcher's government struggled to contain public spending, and was instead rescued by stronger growth, and better tax revenues as a result. We feel that as the coalition's popularity wanes and the next general election approaches (2015), the Chancellor may struggle to find support for additional spending cuts.

David Fuller's view Of necessity, it was a tough budget. As such, it should help to steady sterling which has already seen a significant devaluation against most other currencies. It should also buy more time before UK long-dated government yields eventually rise.

The UK will now need some good fortune in the form of: 1) a minimum of damaging strikes, 2) no spikes in staple commodities such as crude oil, 3) a coalition government which holds its nerve, 4) no double dip recession. This is a big ask but just possible.