Harder-Edged Warnings About Britain’s Economy

Source: New York Times

By LANDON THOMAS, Jr.
Published: April 14, 2009

As job losses accumulate here and the government’s debt burden climbs to fight this recession’s ravages, Mr. Horscroft’s nostalgia has been joined by harder-edged warnings — from no less a critic than former Prime Minister Margaret Thatcher — that Britain’s deteriorating public finances might require the government to seek aid from the International Monetary Fund, just as it did back in 1976 when the country’s economy was on its knees.

Britain currently runs a budget deficit of 11 percent of its gross domestic product — compared with 13 percent forecast for the United States this year. Analysts say they expect that without severe spending cuts and tax increases, government debt will jump to 80 percent of the overall economy in the coming years from today’s level of about 40 percent, a ratio that approaches that of troubled economies like Greece and Italy.

Contrary to some of its troubled European partners like Ireland, Spain and Greece, Britain did not adopt the euro and is thus more vulnerable to a run on its currency. If the situation worsens, turning to the I.M.F. may be the best alternative, Mr. Johnson said. “If you have a budget problem and a banking problem, the bottom line is that you need to make adjustments,” he said. “And an I.M.F. loan can make Britain’s life easier, not harder. They may have to do it.”

“It is not that debt of 80 percent of G.D.P. is unsustainable,” said Gemma Tetlow, an economist at the Institute for Fiscal Studies, a nonpartisan research group. “It is that without fiscal adjustments the debt could grow indefinitely to 100 percent and beyond. And the evidence suggests that the higher your debt,” she added, “the more your borrowing costs increase.”



Read more: http://www.nytimes.com/2009/04/15/business/economy/15pound.html?_r=1&hp

yes, britain needs to cut its expenses, guess which ones they'll be?