Hopes that the UK will soon follow G20 members out of recession appear to be dimming as the pound tumbles and ratings agency Fitch again warned that the failure to tackle Britain's public finances will result in a downgrade of the country's credit worthiness. The gloomy portrait of Britain on the cusp of 2010 shows the current recession is deeper than that in the early 1980s and longer than the recession of the 1930s. Last night, Terry Smith of the money brokers Tullett Prebon told Sky News starkly: "We will have a crisis of confidence in the credit worth of the UK. People won't be willing to buy gilts at anything like the current interest rate, or even possibly in this currency and we'll have an interest rate hike and/or a good, old-fashioned sterling crisis. Possibly both." Fitch said that the UK is not alone in needing to "articulate more credible and stronger fiscal consolidation to underpin confidence in the sustainability of public finances." France and Spain are in a similar position. Analysts say Britain's economic strengths in the 00s - financial services activity, property speculation and consumer spending - are now its burdens. ING economist James Knightley calls it "the big hangover from the credit boom". Meanwhile, the rating agency Standard & Poor has downgraded the collective rating of Britain’s banks. Citing the banks' significant debt burden, the agency now places the UK banking system on a par with Austria, Portugal and Chile. “We no longer consider the UK to rank among the most stable and low-risk banking systems globally in the light of the weak economic environment, the reputational damage to the industry, and the increased dependence on state support programmes," S&P noted. The news is a fresh blow to Gordon Brown: not only have Labour's stimulus measures failed to lift the UK out of recession but they have thrown Britain's public finances into deeper disorder. Yesterday, the pound tumbled against the dollar to a two-month low of $1.60. Of little consolation, the loss of GDP is marginally less than feared at the start of the year. According to official statistics, UK output has dropped 6.03 per cent since the start of the recession in early 2008, marginally worse than the six per cent fall during the slump of 1979-81. Still, a 0.2 per cent contraction in the third quarter is an improvement on Jonathan Loynes, chief European economist at Capital Economics, told the Guardian: "The figure has gone up from an original estimate of a -0.4 per cent drop, and may yet go up further in future releases. But this will make little difference and will leave the UK still looking weak compared to its major competitors." Filed under: UK Economy, Recession, banks, Standard & Poor, Credit ratingDeep slump, falling pound: Britain’s Black Christmas
UK banks downgraded by Standard & Poor to rank with Portugal and Chile
the 0.7 per cent in the three months to June. By contrast, the US economy expanded 0.6 per cent in the most recent quarter.
Wednesday, 23 December 2009
LAST UPDATED 6:49 AM, DECEMBER 23, 2009
Labour's stimulus measures have thrown Britain's public finances into deeper disorder
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