Chancellor of the Exchequer Alistair Darling announced the UK budget yesterday, and it was revealed that the UK would have to issue more debt (Gilts) in order to continue with their present plans, the debt levels will rise to a record level of 79% of GDP by 2013/14. The period of 2009/10 will see £220bn of gilts issued, a full 20% greater than expected, on one hand this might be the ‘shock and awe’ approach, on the other it is extremely inflationary and has had an instant effect on GBP long term interest rates.
Several factors fed into this, yesterday the Public Sector net cash requirement was forecast at £16.5bn but the actual requirement was £28.4bn. Two lessons that countries around the world will learn from the current financial crisis are firstly – the need for counter cyclical planning, the second is the extreme danger that a country is put in by having a bloated public sector. Britain is also facing deflation.
Sterling is likely in for some secular …