Sense on Cents

Are we witnessing the virtual fall of the United Kingdom? Reports this morning indicate the UK remains mired in recession. The UK GDP registered a very disappointing -.4%. Analysts expected the report to register a +.2% increase.

With the report, are we witnessing an acceleration in the demise of this ‘kingdom?’ I believe we are. The Wall Street Journal offers insights into the economy of this once proud and productive kingdom, in writing, The U.K’s Unbelievable Shrinking Economy:

A note from Goldman Sachs said it all. The U.K.’s latest gross domestic product data showing the economy shrunk by 0.4% in the third quarter and by 5.2% over the past year is “Unbelievable. Literally.”

This result wasn’t just wildly at odds with the Bank of England’s forecast for growth of 0.2% — also the consensus estimate in the markets — but is out of line with recent survey data showing a considerable pick-up in economic activity. These forecasts indicated growth of nearer 0.7% in the third quarter, according to Goldman Sachs.

If the official statistics are right, then the U.K. is in even more trouble than the market already thought. A sixth straight quarter of economic contraction would confirm this as the worst U.K. recession since World War II.

The reaction to this report was an immediate decline in the value of the British pound. Analysts project the British government will have to engage in further quantitative easing and fiscal stimulus. The money needed to support those government initiatives is money the U.K does not have.

The WSJ adds further:

With the latest government borrowing figures showing the Treasury is already on course to overshoot its £175 billion borrowing forecast this year, the biggest risk to the U.K. remains that the markets conclude its Triple-A rating is also literally unbelievable.

The U.K’s AAA-rating is nothing more than a joke at this point propagated by the rating agencies which have little credibility. I would venture that the UK has not been downgraded simply due to political pressures.

Long live the Queen, but given the current economic situation and projected ongoing fiscal deficits, the UK is a ‘kingdom’ in name only.

LD

This entry was posted on Friday, October 23rd, 2009 at 9:01 AM and is filed under Economy, General, United Kingdom. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.