While Britain has increased spending to aid its economy, along with subsequent exchange traded fund (ETF), credit agencies are beginning to voice concern over the country’s indebtedness.
On a positive note, Bank of England Monetary Policy Committee member Andrew Sentance said that the downturn is moderating, reports Reuters. While it’s too early to spot signs of economic recovery there or to predict the pace of such a recovery, the moderation is a positive signal.
But England still has big troubles to overcome.
The increased amount of government spending has thus created the highest debt level seen since World War II. The Treasury estimates the deficit will reach a minimum of $272 billion, or 12.4% of GDP, this year. The economy contracted 1.9% in the first quarter year-over-year, and the government predicts the economy will shrink 3.5% for the year. Unemployment is also expected to reach 3 million by year’s end.
Britain’s deteriorating finances and high debt has caused Standard & Poor’s to warn Britain about potentially losing its AAA credit rating. Most don’t think a downgrade is imminent or even likely. Moody’s Investors Service and Fitch Ratings are both keeping a stable rating for Britain.
The British government debt burden may reach 100% of GDP and hover there for the medium term. If the country lost its top-level credit rating then it would cause difficulties for Britain to raise more money through bond sales and it would be more expensive for to finance debt.
- iShares MSCI United Kingdom Index (EWU): up 9.1% year-to-date
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.