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Uk Public Sector Finances

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Public sector net borrowing (excluding financial interventions) was £141.1 billion in the year for 2010/11, down from £156.5 billion in the same period last year. The OBR’s Economic and Fiscal Outlook (March 2011) forecast for 2010/11 is net borrowing of £145.9 billion.

Not exactly unexpected, a bit better than forecast, still £386m~ a day though! A long way to go.

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Here are some thoughts on the US dollar weakness which does seem severe this morning.

The US Dollar exchange-rate falls sharply

If you recall on Tuesday the US dollar initially fell but then rallied to be stronger than before the announcement. Finally though we have found a clear impact as it has fallen since. Indeed the fall has been heavily and has taken it overall to three-year lows. The trade-weighted dollar index has fallen this morning to 73.80 at one point which compares with a post-announcement level of 75.48, giving us a fall of just over 2% in under two days.

There are contrary strands in any currency move as it has to fall against something and another recent trend has been the strength of the Euro which I illustrated yesterday against the Yen. This can as easily be shown against the US dollar as it now stands at 1.456 making yet another problem for the price-competitiveness of economies such as Greece,Ireland,Portugal and Spain.

If we look at the Yen itself there is a problem here as continued dollar weakness is threatening to undermine the recent currency intervention by the world’s major central banks. This morning further weakness has taken the dollar back to nearly 82 against the Yen in a decline which started early Wednesday. If we look back a theme of Yen strength dogged Japan and in particular her exporters throughout 2010 and left the Bank of Japan with a big headache as it struggled to help and mostly failed. Its intervention in September of last year which took place at 83 is soundly offside again. With the natural, nuclear and potential economic disaster that has hit Japan she is being hurt again by a weak dollar.

The weak dollar also will bring back the subject of “currency wars”, a phrase coined by Brazil’s Finance Minister. For those who have not followed this matter it goes as follows. The United States has followed a very expansionary monetary policy with interest-rates near to zero and making a considerable amount of asset purchases ( QE,QE-lite and QE2) which by expanding the balance sheet of the US Federal Reserve to around US $2.3 trillion has increased the supply of US dollars. This increase in the supply of US dollars has led to a fall in its price or exchange-rate. As an exchange-rate cannot fall in isolation this means that other currencies have had to rise and this is what other countries have complained about. At the time Brazil Korea and China were particularly critical of US policy in this regard, which just to avoid confusion is denied by Ben Bernanke the Chairman of the Fed. If we look at the recent high for the dollar index which was 88.71 on the 7th of June last year with today’s low we can see that it has fallen by just under 17% in ten months. Accordingly on average other currencies have risen by the same amount.


It goes onto explain that the Aussie dollar seems to be the most affected...

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So £141bn, with something like 6 million public sector workers, we could just cut £23,500 each from their salaries.

Hang on, that doesn't compute!!!

Perhaps we should just claim back the bailout money instead from the banks.

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'Public sector net debt (excluding financial interventions) was £903.4 billion (equivalent to 59.9 per cent of GDP) at the end of March 2011. This compares to £760.3 billion (52.8 per cent of GDP) as at the end of March 2010.

The unadjusted measure of public sector net debt expressed as a percentage of gross domestic product (GDP), was 148.5 per cent at the end of March 2011 compared with 152.1 per cent at end of March 2010. Net debt was £2,238.6 billion at the end of March compared with £2,190.0 billion a year earlier.'

and then

'In the calendar year 2010 the UK recorded general government net borrowing of £148.9 billion, which was equivalent to 10.2 per cent of gross domestic product (GDP).

At the end of December 2010 general government debt was £1105.8 billion, equivalent to 76.1 per cent of GDP.

The Maastricht Treaty's Excessive Deficit Procedure sets deficit and debt reference levels of 3 per cent and 60 per cent respectively for all EU countries. The UK's compliance is assessed on a financial year basis. The debt measure used under the Maastricht Treaty does not take account of assets held by general government.

These data were reported to the European Commission at the end of March 2011'

so three choices really, take your pick

interesting that net debt had plateaued at about 36% of GDP just prior to the financial crisis.

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