As good times fade, Britain faces economic woes
Debt piles up as key election nears
LONDON — Government debt is growing, as is the deficit. The economy is struggling to get out of recession and there is talk of spending cuts or higher taxes. The unions are on edge. And the currency is plummeting.
The country is not Greece — but Britain, almost six times bigger, racking up debt even faster, and headed into a critical election.
The woes of Britain — only recently a cocky symbol of the global boom times — show that the troubles for Europe, and the West, extend far beyond the traditionally laggard countries of southern Europe.
Britain does have some factors in its favor: Unlike Greece and its reliance on the common euro, it prints the currency in which its liabilities are denominated. It is also considered a surer bet for repayment, maintaining a triple-A credit rating.
But the approaching general election is complicating matters. Electoral campaigning is always a difficult time to extol the virtues of cutting spending on services such as roads and hospitals and raising taxes — and the recent recession isn’t making cash-strapped Britons more amenable.
Even worse, the growing fear is that neither Prime Minister Gordon Brown’s ruling Labor government nor the main opposition Conservative Party will win enough seats in the poll, likely to be on May 6, to form a majority government.
A parliament in which no party has a majority of seats could be disastrous for the country’s fiscal problems, with the government lacking the votes to push through austerity measures.
And debt is piling up at an alarming rate.
The British government borrowed $6.44 billion in January alone — a staggering $145,660 every minute — ending 17 years of surpluses for the month and putting it on track for a record $267 billion budget deficit this year.
Economists warn Britain is on course to borrow the equivalent of 12.8 percent of gross domestic product in 2009 and 2010 — exceeding the 12.7 percent forecast in crisis-hit Greece and far above the average 6 percent for Europe.
Britain’s debt-to-GDP ratio is forecast to reach 82 percent this year, almost double the level two years ago — albeit well shy of the 123 percent in Greece.
The huge deficit is partly due to big expenditures by the government to mitigate the impact of the global credit crisis and economic downturn. It has taken over two troubled mortgage lenders, and holds major stakes in two big banks, Royal Bank of Scotland and Lloyds Banking Group.
So far, Britain has escaped too much scrutiny because of its differences from Greece, notably the healthy sovereign credit rating and the fact that much of its debt is long term. That gold standard credit rating allows Britain to borrow relatively cheaply on global financial markets.
But yields on government bonds have in recent weeks soared to among the highest in Europe while the British pound has taken a battering — both signs of increasing worries about the country’s public finances.
There are also concerns that Britain, like other advanced economies, entered the global crisis with its finances in a worse position than many developing nations that spent the last decade cleaning up their balance sheets.
“The UK’s deficit, though worryingly large, is still manageable, but the government must act now to set out a convincing, credible pathway for balancing the books,’’ said Richard Lambert, the director-general of the Confederation of British Industry, the country’s leading business lobby group.