Tuesday, 14 April 2009

Does the UK need help from the IMF?

The following comes from an article in today's New York Times. It underlines the severity of the downturn in the public finances in the UK and raises one of the more sensitive issues facing the Brown government (apart from all of the "business as usual" political sleaze) - how will they be able to finance annual deficits that will be at least 150 Billion Pounds this year and probably even worse in the coming years?

After a recent failed auction for gilts and with Brown having to seek re-election within a year the capital markets may get even more uneasy about the appetite for financial discipline and prudence from the man who has been at the helm of the British economy for the last 12 years.

Speculation that Britain may once again seek I.M.F. assistance — and become the first major western European country to do so during this crisis — rests upon a crucial, uncertain assumption: that the combination of its steep debt and wounded banking sector will bring too much pressure to bear on its currency, the already wobbly pound.

Britain currently runs a budget deficit of 11 percent of its gross domestic product — compared with 13 percent forecast for the United States this year. Analysts say they expect that without severe spending cuts and tax increases, government debt will jump to 80 percent of the overall economy in the coming years from today’s level of about 40 percent, a ratio that approaches that of troubled economies like Greece and Italy.

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