But without the same Liquidity Risk

Budgetary finance problems have completely different implications for sovereign non-currency issuing countries such has Greece. This article is out of paradigm. The UK does not need to "get" pounds from any exogenous source.

Friday, 19 February 2010


Britain's public finances are in a worse position than those of
Greece, according to the latest figures on government borrowing. The
Office for National Statistics said yesterday that January alone saw a
net shortfall of £4.3bn, far worse than City forecasts and in a month
which has always previously shown a healthy surplus. It puts the UK on
track for a deficit of £180bn this year, or 12.8 per cent of GDP,
economists said, shading the Greek figure, hitherto the worst in the
European Union, of 12.7 per cent. In the pre-Budget report the
Chancellor forecast a deficit of £178bn for the current year. Warnings
that the UK could face a Greek-style crisis of confidence have been
building for some weeks, and yesterday saw a sell-off of sterling and
British government securities, or gilts, on the disappointing news.

Jonathan Loynes, chief European economist at Capital Economics
commented: "The figures suggest that this year's budget deficit could
exceed that of Greece and further underline the need for more decisive
action to improve the fiscal position when the economy is strong
enough to withstand it.

"It is clear that a more credible plan to restore the public finances
to health will be required shortly after the general election in order
to keep the markets and rating agencies at bay."

January usually shows a healthy surplus, as tax receipts flow in from
City bonuses and payments made before the final deadline for
self-assessment on 31 January. Last year, for example, revenues
exceeded public spending by over £5bn in the month. This year, tax
receipts across the board were unusually depressed, reflecting the
depth of the recession in the 2008-09 tax year. Depressed earnings in
the financial sector and the general weakness of the economy conspired
to push receipts down by 9 per cent overall compared with last year;
income tax takings slumped by 20 per cent, and corporation gains tax
revenues fell by 6 per cent. VAT payments were up a little, after the
17.5 per cent rate was restored on 1 January. On the other side of the
ledger, public spending is still showing double digit increases: 15
per cent up in January, driven higher by the rise in benefits to the
unemployed.