Britain faces financial woes
Renewed worries about European sovereign debt, this time Britain’s, knocked equities back on Tuesday and ate into early euro gains against the dollar. Europe’s FTSEurofirst 300 was down 0.9 per cent, giving up an early rise.
That pushed MSCI’s all-country world stock index into negative territory, down 0.2 per cent.
Ratings agency Fitch unsettled investors in British assets, saying “the scale of the UK’s fiscal challenge is formidable and warrants a strong medium-term consolidation strategy — including a faster pace of deficit reduction than set out in the April 2010 budget.”
It was the latest salvo in a series of concerns expressed by rating agencies about the state of government finances in Europe, including Greece, Spain, Hungary, Ireland and Britain.
Solving the debt problem implies heavy budget cuts at a time when many believe spending is needed to help keep economic recovery on track.
In a special report ahead of an emergency budget planned by the new coalition government in the
UK, Fitch noted that the rise in public debt ratios since 2008 is faster than any other AAA-rated country.
It added that the primary deficit is almost twice as large as during previous economic downturns in the 1970s and early 1990s.
Britain’s budget deficit is forecast to reach 10.4 per cent of gross domestic product this year, while debt as a percentage of GDP was 62 per cent in 2009-10.
“The scale of the United Kingdom’s fiscal challenge is formidable and warrants a strong medium term consolidation strategy,” the Fitch report said.
The Prime Minister, Mr David Cameron, has pledged drastic spending cuts, noting on Monday that annual interest payments alone would rise to around £70 billion a year, from £42 billion currently, within five years if action is not taken.
The former Prime Minister, Mr Gordon Brown, had repeatedly warned that bigger spending cuts this year could jeopardise Britain’s fledgling recovery from its worst recession since World War II.
“Both the size of the deficit currently projected for 2011 and the failure to reduce the deficit to three per cent of GDP within five years are striking,” Fitch said in its report.
— Reuters, AP
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