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.
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"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.
However, economists also pointed out that the total national debt carried by Britain is still lower than Greece and other so-called PIIGS – Portugal, Italy, Ireland, Greece and Spain, the eurozone's most heavily indebted nations. Although it has been expanding rapidly, UK national debt stands at about 60 per cent of GDP, against more than 100 per cent in most of these other states.
British debt is also much longer term than that of Greece, making re-financing the debt easier. November and December showed relatively good returns, but even so, all economists stressed the need for clarity on how the government will deal with the issue, whoever wins the next election. The Conservative leader, David Cameron, has explicitly likened the UK to Greece and warned that failure to deal with the deficit issue could mean higher interest rates and mortgage bills hundreds of pounds a month larger for millions of householders.
Shadow Chief Secretary to the Treasury, Phillip Hammond, said yesterday: "These appalling figures – showing the first January deficit on record – illustrate the scale of Labour's debt crisis. Every British family faces a bill of £4,800 to pay for Gordon Brown's borrowing so far this financial year alone."
Liberal Democrat Treasury spokesman Vincent Cable added that the figures "underline the importance of having a credible plan to tackle the deficit. Simply slashing spending now regardless of the economic circumstances is not only a fruitless labour but a damaging one".
The Treasury say they are sticking to the Chancellor's forecasts. Mr Darling has promised to cut the underlying budget deficit by a half within four years. Pressure on the finances of local government is also set to continue to intensify, as support from Whitehall is squeezed and local economies are hit by the continuing effects of the downturn. One of the areas hardest hit by the recession is the Midlands. Last week Birmingham City Council, the largest local authority in the country, announced 2,000 redundancies and Nottingham £18m in savings, examples of a growing tide of public-sector cuts and job losses.
£180bn
Scale of UK deficit this year, up from forecast £178bn.
NEW YORK, Feb 19 (Reuters) - Currency speculators increased bets the U.S. dollar will rise to the highest level since the week of Sept. 23, 2008, according to Commodity Futures Trading Commission data released on Friday.
The value of the dollar's net long position rose to $9.69 billion in the week ended Feb. 16, from $9.41 billion in the prior week.
The Reuters calculation for the aggregate U.S. dollar position is derived from the net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc, Canadian and Australian dollars.
The net short euro position at 59,422 contracts hit a fresh record.
Speculators boosted their short bets against sterling and reduced their long positions on the yen.
The CFTC data also showed speculators sharply increased their bets on the Canadian dollar, with long positions at 23,455 contracts, up from 8,863 in the previous week.
To be short a currency is to bet it will decrease in value, while being long a currency is a bet that its value will rise.
JAPANESE YEN (Contracts of 12,500,000 yen)
2/16/10 week 2/09/10 week
Long 35,691 41,352
Short 21,779 18,956
Net 13,912 22,396
EURO (Contracts of 125,000 euros)
2/16/10 week 2/09/10 week
Long 34,459 34,867
Short 93,881 92,019
Net -59,422 -57,152
POUND STERLING (Contracts of 62,500 pounds sterling)
2/16/10 week 2/09/10 week
Long 13,922 14,012
Short 70,001 66,768
Net -56,079 -52,756
SWISS FRANC (Contracts of 125,000 Swiss francs)
2/16/10 week 2/09/10 week
Long 10,763 9,219
Short 15,430 16,115
Net -4,667 -6,896
CANADIAN DOLLAR (Contracts of 100,000 Canadian dollars)
2/16/10 week 2/09/10 week
Long 35,026 24,285
Short 11,571 15,422
Net 23,455 8,863
AUSTRALIAN DOLLAR (Contracts of 100,000 Aussie dollars)
2/16/10 week 2/09/10 week
Long 43,315 44,346
Short 16,312 16,740
Net 27,003 27,606
MEXICAN PESO (Contracts of 500,000 pesos) -1,342,317,429.41
2/16/10 week 2/09/10 week
Long 43,429 42,328
Short 8,965 10,054
Net 34,464 32,274
NEW ZEALAND DOLLAR (Contracts of 100,000 New Zealand dollars) -525,728,850.00
2/16/10 week 2/09/10 week
Long 14,523 14,359
Short 7,088 9,636
Net 7,435 4,723 (Reporting by Wanfeng Zhou; Editing by Kenneth Barry)
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