Saturday, December 22, 2007

A Troubled UK Economy

source: Record UK deficit heads wave of bad data
Despite government assertions that the UK economy will “weather” global financial storms, the credit squeeze continues to wreck havoc on financial health. Data from the first eight months of the financial year reveal the worst public finance deficit ever as well as an annual drop in new mortgage lending. The Office for National Statistics revealed that the current account deficit widened from £13.7 bn to a record £ 20 bn in the third quarter. This deficit is equivalent to 5.7 percent of the gross domestic product, leaving Britain with the largest current account deficit in the group of seven leading countries. Analysts suggest that the sudden and deep deterioration in public finances will result in a shortfall of tax revenues.
The rapid increase in the current account deficit is largely attributed to big revisions to foreign investment incomes. A gap the large between what Britain spends and what it produces has never proven sustainable, leading to either falling currency to boost exports or a sharp slowing in spending to curb imports.
Similar worries plague the housing market. The Council for Mortgage Lenders said that gross mortgage lending last month was 8% lower than in November 2006. This marks the first annual decline in more than two years. The Council attributed the trend to a lack of available funding.

Questions for discussion
1. Is Britain’s financial trouble likely to affect its position in the global economy? If so, in what way?

No comments: