FT Alphaville was surprised to see that the lead story in the New York Times’ business section on Wednesday was devoted to a discussion of Britain’s parlous finances.
Moreover, the story featured interesting and provocative examples (albeit ones that would not quite be news to regular AV readers):
investors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets.
…
“If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe, the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”
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the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation.
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As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.
David Rosenberg of Gluskin Sheff also referred to the piece in his morning missive, noting:
Britain is probably one of the few countries in the world where political uncertainty, a renewed round of house price deflation and a sinking currency can manage to elicit a bounce in consumer sentiment (the country has a Greek-like 12.5% deficit-to-GDP ratio, which is double the European average and a household debt-to-GDP ratio that, at 170%, makes the U.S. household sector downright frugal at 130%
Quite.
Related links:
The UK’s heading one (AA) way, Citi says – FT Alphaville
The full faith and credit of the UK – FT Alphaville
RBC visualises a UK sovereign downgrade – FT Alphaville
United Kingdom – the first rating alarm bell rings – FT Alphaville