5th
Worries About U.K.’s Soaring Debt Depress Gilt Prices Again
LONDON — A day after laying out its most dismal budget plan in decades, the U.K. government became the focus of fresh investor concerns about its ability to handle a costly financial and economic bailout.
Prices of U.K. government bonds fell for the second day Thursday as investors digested the country’s plans to borrow an added £606 billion ($877.25 billion) over the next four years and worried that even the government’s own gloomy budget forecast — which sees it running large deficits through the year 2017 — may be too optimistic. Complicating the picture: The government itself must face re-election by June of next year, casting doubt on its promises to ultimately get its finances under control.
“They’re looking through rose-tinted glasses,” said Scott Thiel, a London-based bond portfolio manager for investment firm BlackRock Inc. “You can go to a very dark place with this budget.”
On Wednesday, U.K. Treasury chief Alistair Darling said that the cost of the country’s economic-stimulus and banking-bailout plans, together with falling tax revenues, would force the government to run its largest peacetime budget deficit on record — about 12% of gross domestic product in both of the next two years. Even if, as the government predicts, the economy returns quickly to growth after shrinking by 3.5% in 2009, Mr. Darling said the deficit would remain above 5% of GDP in 2013. That would push government’s debt up to more than 75% of GDP, from about 43% now.
Many economists, though, see government forecasts as too optimistic. For one, Mr. Darling estimates the cost of the U.K.’s bank-bailout efforts at as much as £50 billion, less than half what the International Monetary Fund expects. Economists are also skeptical that a new 50% income-tax rate for top earners, planned for 2010, will bring in much added revenue.
Read the rest of this story by Neil Shah:
