UK Budget Deficit Could Hit £200 Billion, 18% of GDP
Economics / UK Debt Nov 19, 2009 - 04:31 AMBy: Nadeem_Walayat
The public sector net borrowing requirement (PSBR), which is the deficit between government revenues and expenditure for October came in at £11.4 billion (£0 Oct 2008), the worst October since records began which surprised mainstream academic economist projections for the month of between £4-7 billion which compares against my own projection of £12 billion. The deficit for 2009/10 now totals £86.9 billion which on face value is inline with the the Governments target of £175 billion by the end of the current financial year.
However government revenue, tax receipts continue to decline sharply therefore it is highly likely that the target of £175 billion (Set in April 09) will be breached, especially after electioneering stimulus spending measures are fully taken into account which make it highly likely that the final tally will be above the Chancellors revised target and could even reach the eye watering £200 billion that risks sparking a currency crisis. There is talk in the mainstream press of the scheduled VAT hike back to 17.5% from 15% in January covering this increased deficit, however I doubt it as it is likely that consumers will cut spending, resulting in little if any impact from the Tax hike and may even result in a worsening deficit i.e. a total figure North of £200 billion by the end of the financial year.
Debt Fuelled Economic Recovery
Whilst the UK economy is on track to bounce back strongly into 2010, as indicated by June's in depth analysis, however this economic recovery is based purely on debt as shown by the graph below, as the Labour government's strategy is to deliver the next Conservative government a scorched earth economy.
Alistair Darling's forecast for government net borrowing for 2009/10 in November 2008 totaled just £70 billion. However, since the amount of projected borrowing has mushroomed to £350 billion, which is set against my November forecast of £405 billion for 2009 and 2010 alone, with continuing subsequent large budget deficits thereafter of more than £100 billion a year.
Whilst many economists were surprised by Alistair Darling's April forecast that the UK Economy would grow by 1.25% in 2010 and 3.5% in 2011. However we need to consider the following in that 1.25% growth on the annual GDP of £1.2 trillion equates to growth of just £15 billion and for 2011; 3.5% growth equates to just £42 billion. Therefore the government is borrowing a net £175 billion for 2009 and £175 billion for 2010 to generate £15 billion of growth, and then a further £140 billion for 2011 for £42 billion of growth. Thus total net borrowing of £490 billion to grow the economy by just £67 billion, (£595 billion my forecast) which shows the magnitude of the scorched earth economic policy now implemented that literally aims to hand the next Conservative government a bankrupted economy that will be lumbered with the consequences of continuing huge budget deficits and therefore necessary deep cuts in public spending.
Whilst the OECD and other mainstream organisations / press have been busy in recent months revising their economic forecasts, my forecast remains as is and continues to project towards post general election tax hikes and deep public spending cuts that will in my opinion trigger a double dip RECESSION during 2011 to 2012 as illustrated by the graph below.
By Nadeem Walayat
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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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