Fiscal Cliff: Obama Cuts Holiday Short

US President Barack Obama has cut short his Christmas holiday in Hawaii to return to Washington for crisis talks on averting the so-called 'fiscal cliff'.

The White House and Congress have until the end of the month to reach a compromise on how to avoid a series of tax increases and spending cuts worth $600bn (£371bn) that were initially designed, in the era of President George W Bush, to scare politicians into a Budget deal.

These measures will kick in on January 1 without an agreement.

Economists fear that unless the Democrat President and a Republican-dominated Congress do a deal, the pain inflicted by a plunge over the fiscal cliff would tip the US into recession and hurt the wider world recovery.

There is little sign of a compromise on Capitol Hill as Congress returns from its Christmas break.

Republican John Boehner is leading the negotiations with President Obama

While UK markets were closed for the Boxing Day holiday, those in the US lost some ground as nerves began to resurface.

The FTSE 100 opened almost 0.2% lower in London on Thursday but soon recovered that back - a sign that investors were prepared to wait for news on the crisis talks.

A rush for safe havens is predicted if it becomes clear that no deal is possible.

It is understood that both sides are already drawing up plans for a 'blame game' in the event that compromise fails to materialise.

While President Obama has looked to protect the most vulnerable the Speaker of the House of Representatives, John Boehner, has said that targeting more tax from business and the wealthy would be counter-productive to job creation.

Experts suggest the two men could reach a short term deal to beat the deadline but there is no guarantee it would be backed by the House.

While Mr Boehner was personally humiliated by the failure to secure backing for his own solution to the crisis before Christmas, public frustration and anger with politicians is growing as the deadline looms.

Consumer confidence figures out later are forecast by some to reflect worries about the impact of the fiscal cliff.

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