Wednesday, 3 June 2009

A Brown-Balls agenda could add to S&P's concerns about UK fiscal outlook

Things are getting very messy for Gordon Brown and he may not survive the week.

Previously its editorial policies have been basically supportive and friendly to Britain's Labour Party, but this morning's main editorial in The Guardian calls for Gordon Brown to step aside - "It is time to cut him loose."

Many commentators are now seriously doubting whether Brown can survive the next few days, with a catastrophic showing in European and council elections to be held Thursday (June 4) almost inevitable. Brown seems to believe that he may be able to hang on in the wake of a re-shuffling of his Cabinet which could come as soon as this Friday.

Let's assume that Brown can carry on and appoints, his chum, Ed Balls as new the Chancellor. A lot of attention in the UK media is now being focused on why this will be very antagonistic to the residual bad blood between Blairites and Brownites etc.

But this seems to be missing the Big Picture and has all of the appearance of being a parochial Westminster village issue (which is not to say that it could not prove to be yet another knife in the back for Brown inflicted from within his own party).

Let's consider a Brown-Balls axis in the light of the recent S&P negative outlook and the fiscal problems facing the UK and how markets might react if Ed Balls is appointed as Chancellor.

My suspicion is that the real reason for Brown to appoint Balls would be that Brown and Balls together want to have another go at being really generous with taxpayer's money and to fund another stimulus before Brown has to face an election. It has to be called within the next year.

With Balls controlling the purse strings of government, as opposed to the more frugal Mr Darling, and with Mr Brown in such a desperate bind that a cynical spending spree could be the only thing to save his career, it would not be surprising if markets were to once again focus on the concerns expressed by S&P over the credit outlook for the UK and the need for fiscal prudence.

A Brown-Balls fiscal agenda would not be constructive for gilts, sterling and possibly not even for the FTSE either.

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