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.