Saturday, September 19, 2009

The root of our problem

I notice that the pound has fallen even further today giving us an exchange rate of 1.10 Euros to the pound. Why, when the rate was increasing, has it started to fall again?

The answer is simple – as The Times reports:-

Britain is clocking up debt at a rate of £6,017 per second as the Government struggles to balance the books. With tax receipts plummeting because of the recession, state borrowing grew by £16.1 billion last month.

Net borrowing for the first five months of the financial year stood at £65.3 billion, compared with £26.1 billion at the same stage last year. Total borrowing soared past the £800 billion mark for the first time and total state debt as a proportion of national output reached 57.5 per cent.

Taking fright at the figures, foreign exchange dealers sent sterling diving to a four-month low against the euro. The value of the pound fell by more than 1 per cent against the dollar.

Analysts said that the Budget forecast by Alistair Darling, the Chancellor, that additional borrowings would be £175 billion this year was not pessimistic enough and predicted that borrowing would be between £15 billion and £50 billion above that forecast.

Around the world, governments have kept spending to prevent a global depression, sending state borrowing soaring to $35 trillion, according to the Economist Intelligence Unit. The G20 leaders will discuss when to reverse stimulus policies of high public spending and ultra-low interest rates when they meet in Pittsburgh next week.

Measured as a proportion of national income, total UK government borrowing is not out of line with other rich nations, but it is growing much faster. The ONS figures exclude many public sector liabilities, including unfunded pension promises and some costs of the banking bailouts.

A Treasury spokesman said that the figures were in line with government forecasts. “They reflect the impact of the global financial crisis on tax receipts as well as the action we are taking to support the economy and invest to benefit from the recovery.”

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