(eToro Blog)The Austerity program in the UK has earn the blessing of the CBI who believe that private sector growth will offset the declines in demand from the public sector. The CBI has endorsed the split of 73 per cent cuts in spending to 27 per cent tax rises implicit in the £110 billion consolidation by the end of this parliamentary session .

The CBI expressed "cautious optimism" for "slow but significant growth this year and next". It is predicting 1.7 per cent growth this year and 2.2 per cent the next, in line with its last forecast in February and a little weaker than the government and the Bank of England expect. The CBI is optimistic, in particular, that the economy will rebalance towards greater export-driven demand and greater business investment.

The UK has seen mixed results in terms of economic performance thus far in 2011, and the Bank of England has been more concerned with inflation expectations rather than increasing growth prospects. The CBI is confident that growth is more robust that the official data suggests which is that the economy has treaded water since the autumn.

The fiscal difficulties in Greece, Portugal and Ireland and a decision by Standard & Poor's, the rating agency, to put the US on negative watch for a downgrade of its triple A rated debt, has highlighted the UK deficit reduction plan. Growth would be about 2 per cent a year, in part because the spending cuts would knock 0.75 percentage points a year off growth for the rest of the parliament.

A strong reduction in spending would trim the risk premium on longer dated fixed income assets, allowing the housing sector a chance at a rebound. Stronger housing could spill over into consumer spending which would create the desired private sector offset in growth.However Sterling still seems vulnerable.Sterling keeps trading flat with the Cable failing to edge above 1.64$ and and the GBP/JPY continues its sideways in the 131-132 range.