Friday, June 19, 2009

U.K. Budget Deficit At Record High

The U.K. budget deficit during the first two month of the financial year (April & May) doubled to £30 billion. It is now projected to reach £200 billion or 14% of GDP for the year as a whole, most of any EU country.

That is one of the reasons why, unlike in other countries with large external deficits in Europe, the U.K. hasn't seen its trade and current account deficits decline, despite the weak pound. Though since most other countries have seen their budget deficit rise too, it is clearly not the only reason.

Another reason is that the cause of the weak pound, the Bank of England's inflationist monetary policy, has meant that credit and money growth has stayed strong, which in turn has boosted demand for foreign goods.

A third reason is that the U.K. unlike the other deficit countries has very little (net) imports of oil due to its North Sea fields, so the great decline in oil prices from last year's peak has had a far smaller effect on the U.K.


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