Britain’s Debt Rises Faster Than Ever

Britain is drowning in debt to the tune of £65bn a year according to Item, the independent forecasting group.

Britons have cashed in overseas assets, such as shares, property and businesses to fund an ongoing lifestyle that we cannot pay for in earnings. In addition UK businesses are being sold to foreigners for the same reason.

Item believes that interest rates should be reduced from their current level of 5.5% to 4.75% as the credit crunch continues to have an adverse impact on the UK economy. Item has also suggested that the Government should allow public borrowing to rise.

Item economist Professor Peter Spencer says: “We have been living well beyond our means. We have been lured by offers of cheap credit and tempted by the high prices that the family silver will fetch in international markets. We have a tradition of using international banking markets to help fund long-term investments. But we have been borrowing to fund mortgage and consumer loans and ultimately consumption rather than investment. At the same time, our net long term investment position has been eroded by overseas takeovers of UK companies.”

The 12 months to the end of September 2007 saw the UK balance of payments in the red by £65.6bn. This was 44% higher than the previous 12 months, when the deficit was £45.5bn.

Item is sponsored by Ernst & Young and its reports forecasts that the UK economy will rise by just 1.8% this year – it was 3.1% in 2007. This, says Spencer, will give the Bank of England an opportunity to cut the base rate.

Having failed to build up funds to strengthen its finances during the good years, the Government may have to consider breaking its own ‘golden rule’ of restricting Government borrowing. Spencer says: “They should forget about the golden rule.