A world in economic crisis

Bad News for Britain’s economy

Posted in United Kingdom, welfare state by Aussie on February 17, 2010

JP Morgans has issued a warning to Great Britain about the state of their economy, stating that it is as bad as the 1970s when it was necessary for Britain to apply for a loan from the IMF.

The bank warns that Government debts, when compared to the total size of the economy, are higher than during the 1970s crisis.

It adds that there could be a “marked fall” in the value of the pound as international investors re-assess the health of the British economy.

The Telegraph reports that:

In 1976, Britain was forced to turn to the International Monetary Fund (IMF) for a £2.3 billion bailout. In return for the funds, the IMF insisted on reforms to the British economy including public spending cuts. The period was regarded as one of the most humiliating in the history of the British economy.

In a research note entitled “UK Fiscal Policy: some lessons from the 1976 crisis”, JP Morgan said: “On many metrics, the UK’s fiscal position is currently worse than observed around the IMF loan in 1976…The size of the current budget deficit suggests that the UK is leaning heavily on the credibility it has built up since the mid-1970s.”

The bank’s “central forecast” is that Britain will “muddle through” the crisis. However, JP Morgan added: “The possibility that markets could take a more severe view of the fiscal position is clear, and the 1976 experience demonstrated that the situation can change quickly and unpredictably.

“Officials fretted over the possibility of a marked fall in the currency well before the crisis. Looking back at 1976, one can argue that as the crisis broke, the underlying situation had actually begun to improve (growth had begun to recover and current account deficits had begun to fall).”

Even though Gordon Brown has been warned about the dangers of the high level of government borrowing, he insists that this has been necessary during the recession to stop unemployment rising. However, is that really the case? The issue here is that the Brown Government has plunged the UK into a high budget deficit without considering the necessary tax receipts to cover the borrowing. As I see it, the growth in the welfare state, with an increasing entitlement expectation by those receiving welfare is placing pressure on the budget deficit.


2 Responses

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  1. charlesrowley said, on February 17, 2010 at 7:25 pm

    I lived in England during the 1976 fiasco. At that time an ex-member of the British Communist Party, Denis Healey was Chancellor of the Exchequer under a Labour Government. He had elevated the top marginal rate of income tax to 98 per cent. I always wondered why he did not show his true colours and add on the remaining 2 per cent! His equally left-wing fellow minister, in charge of the Department of Trade and Industry, Tony Wedgwood Benn, through his radical left-wing friend at Cambridge University, Francis Cripps (grandson of Sir Stafford Cripps) had advised me to keep my passport up to date.

    Thankfully, I took the good advice and never looked back!

    Commenting on Sir Stafford, Winston Churchill once pointedly remarked: “There but for the Grace of God, goes God.” His grandson was a chip off his grandfather’s bloc.

    Gordon Brown seems to have been hewn from the same tree, only in his case he comes from a particularly knotty limb.

  2. ozzieaussie said, on February 17, 2010 at 8:12 pm

    I remember the names of Denis Healy and Tony Benn. I remember that at the time England was an economic mess. Thatcher was hard but she did what was necessary to try to pull the U.K. out of its moribund mess.

    Then they went and allowed all of these parasites into the country – they are non-productive, take welfare and do not pay taxes, and that means that the UK will continue to struggle until it recognizes that something has to be done to stop further bleeding.

    What is worse, when many of the people who have lived with “free education” come to Australia and suddenly find that they have to pay for school books, and even pay a small fee each term, as well as paying for a school uniform, they get on their high horse and refuse to pay. This is actually inequitable for those who do in fact pay at least something towards the schooling of their children.

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