Economic Figures Are Not Good For The UK

A raft of figures has exposed Britain’s exposure to debt, and caused a sell-off of the pound, dumping it below $2 for the first time since September. The pound’s value by the Bank of England’s comprehensive trade-weighted index, measured against a number of other currencies, was down to 98.9, its lowest level sine April 2006.

Figures causing concern included the country’s current account deficit almost doubling in third quarter 2007 to £20bn, which equates to 5.7% of GDP, worse than the US, and equal to the worst-ever figure in the last 50 years, from the 1980s.

Domestic saving ratio, measuring how much people save of their income (excluding pension savings) was at -1%, which means that families are borrowing to fund their day-to-day lives. Again, the last time this happened was in the 1980s in the years leading to the last property crash.

Families and businesses are being forced to set aside more money for mortgage and debt payments since the early 1990s. It is another sign that the record level of debt in the country could have serious consequences. Household debt service went up to 13.6% - its highest level since 1991. The equivalent business measure is at 28.8% - its highest since 1992.

As for the Government – its finances went further into debt as well. Figures from the Office of National Statistics (as all these figures are) showed that public sector net borrowing was £11.2bn – biggest since records began in 1993. The total for the financial year to date is £36.2bn, and is almost certain to pass Alistair Darling’s forecast of £8bn for the year.

All these figures add to bad news for the economy, and the pound took the brunt of it initially. In addition, investments from abroad have declined.

Philip Shaw of Investec commented: “The UK can live with a deficit of around 2% of GDP, but 5.7% is a totally different order of magnitude. It means that the UK is spending much more than it is earning and the position is not sustainable.