Déjà vu – UK economic statistics plus world events and credit ratings

There has been a raft of statistics in the last couple of weeks which seem to tell the same story as a few months ago – base interest rates on hold at 0.5%, GDP growth negligible, inflation slightly decreasing but still around 3.5%, UK debt borrowing figures revised downwards but on such high figures the repayment issues remain critical, sterling falling against the US Dollar and marking time with the Euro.

Global stock markets however have been falling from their highs early in the year, then rallying and retreating week to week, reacting to the various pronouncements on Greek debt repayments, the situation in Spain, Portugal, Ireland and Italy and other significant events such as the BP oil spillage in the Gulf of Mexico.

What is of more concern to the UK Treasury is the Fitch credit rating agency report which makes the case “for an acceleration of deficit reduction, particularly in light of events in the euro-area sovereign debt market in recent months.” Fitch also noted that the new coalition government had acted “very quickly”, making deficit reduction a top priority, but sounded a note of caution. It pointed out that most other countries had pledged to cut their fiscal deficits by more than the UK “with other European sovereigns strengthening their fiscal consolidation plans and market concerns about sovereign risk in advanced countries increasing, both the size of the UK deficit currently projected for 2011 and the failure to reduce it to 3% of GDP within five years are striking.” The UK currently has an AAA rating however this is being tested as each month passes as credit ratings are important as they influence how much it costs governments to borrow on open markets. If the UK does not meet or exceed its debt reduction targets, the rating will be cut and a deeper second dip recession may result……………..

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