Tuesday, Apr 21, 2009
NuLabour makes history
Telegraph: Markets braced for historic £200bn deficit
The pound slid after it emerged that Alistair Darling will this week unveil Budget plans which will consign Britain to a deficit dwarfing anything faced in peacetime. With economists raising the prospect of £200bn deficit and a gilt strike in the coming years, sterling fell by 2.66 cents against the dollar to $1.4539, wiping out much of the ground made against the US currency in recent weeks. The plunge came as it emerged that tomorrow the Chancellor will be forced to slash his economic forecasts and raise his borrowing forecast well into the future.
Posted by quiet guy @ 12:05 AM (495 views) Add Comment
3 Comments
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1. Wonderwoman said...
Why don't we just join the Euro & be done with it? It's inevitable anyway so stop prolonging the agony for all our sakes!
2. a saver said...
At least there's one thing I can thank this government for - trashing the pound and boosting my foreign currency bank accounts, all up about 30-50% in the last year.
3. uncle tom said...
If you look at the growth of the UK's national debt, as represented by Gilts; and then look at how the percentage that is foreign owned has grown in recent years; you realise that domestic investors are effectively treading water; keeping their holdings at more or less the same level, and leaving it to the overseas investors to buy the new issuance.
This strikes me as an extremely dangerous scenario. It's not easy to see why foreign investors would want to buy Gilts at the moment, and very easy to see a situation arising where those who already hold Gilts might feel it prudent to sell. Add to that the massive amount of new issuance scheduled for the coming months, and it seems inevitable that things will go wrong.
As the article points out though - the exact timing is a very hard call.
If I were advising an overseas investor, I would point out that we are looking at a scenario that is essentially a 'when' rather than an 'if'; that the consequences will inevitably de-value existing holdings, and that it is therefore prudent to get out now..