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UK election loss may force austerity rethink

But changing their policy would admit defeat, Vicky Redwood from Capital Economics said.

Nigel farage ukip1Enlarge
UK Independent Party leader Nigel Farage enjoys a pint of beer in a pub in central London on May 3, 2013. The anti-immigration UKIP was celebrating some of its best ever results following local elections which delivered a bloody nose to Britain's ruling coalition. (Ben Stansall/AFP/Getty Images)

The ruling Conservative party in the UK took a blow on Friday after the anti-European Union UK Independence Party (UKIP) made major gains at local elections.

Leader of the Conservative Party David Cameron has previously described UKIP as "fruitcakes, loonies and closest racists". However, early results showed UKIP has won as many seats as the main opposition Labour party, putting pressure on the Conservatives ahead of the next general election.

Vicky Redwood from Capital Economics said UKIP's success was primarily related to immigration issues, but if the Conservatives feel threatened as they approach the general election they may have to rethink their fiscal plan for the country.

"One possibility is the Conservatives will rethink their austerity policy, however they could end up worse off as that would be an admission of failure," she said.

"Osborne's austerity measures coupled with the fact the UK economy is not really growing will have contributed to Labour's success over the Conservatives in opinion polls," she added.

Conservative Chairman Grant Shapps admitted his party was "failing" to communicate its policies to voters.

Richard Driver, an analyst at forex firm Caxton FX, said earlier this month: "Flat-lining growth and a lack of progress on the UK debt profile demands a fresh approach."

The UK government's austerity policies have also come in for criticism from the IMF, which warned the Chancellor last month that he needed to rethink the pace of his deficit reduction plan.

"In the UK, where recovery is weak owing to lacklustre demand, consideration should be given to greater near-term flexibility in the fiscal adjustment path," the IMF said in its World Economic Outlook.

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http://www.cnbc.com/id/100705502

http://www.globalpost.com/dispatch/news/business/debt-crisis/130503/uk-election-loss-may-force-austerity-rethink