Government borrowing highest since 1946

The public finances lurched to a record deficit last month driven by a weakening economy and overspending by the government, and analysts say much worse is yet to come as the economy tips into recession.The Office for National Statistics said that public sector net borrowing came in higher than expected at £8.1bn, a record for a September and way above the £4.8bn shortfall seen in September last year. That left the cumulative PSNB for the first half of the 2008/09 fiscal year at £37.6bn versus £21.5bn in the same period a year ago and the highest since records began in 1946. An interesting graphic showed Debt as a % of GDP and despite the current figures the UK remains near the bottom of the table with a figure of 43.6%. For the US it is 60.8%, France 63.9%, Germany, 64.9%, Italy 104% and Japan 170%. If the support for Northern Rock is removed the figure for the UK stands at 38%. There is a view that the the National Debt will reach 100% of GDP by 2010/11 and whilst it is acceptable to borrow during a recession, these higher borrowing figures have emerged before the recession has really started. Link

There is an explanation of the significance of higher government borrowing. (Link)

Haven't we got the message yet?

The Bank of England governor and an influential think tank have predicted that the UK economy is likely to sink into recession in 2009. Mervyn King told business leaders in Leeds he was concerned about rising unemployment and falling house prices. Economic fears sent the pound plunging to a five-year low against the dollar. Meanwhile, the National Institute of Economic and Social Research says the UK is on the brink of its first full year of recession since 1991. The Bank of England has also been criticised for being too slow to cut interest rates in response to the UK's worsening economic situation.

Link to BBC News - includes a short video clip of Mervyn King's statement.

Also, see the set of charts that Geoff Riley has put together on tutor2u blog entitled 'In the Long Run'. Think about the impact of short run fluctuations against long run trends. (Link)

Suddenly its OK to be a Keynesian again!

Geoff Riley on tutor2u highlights the focus on Keynes this weekend in his article on the blog. (Mr Keynes makes a return) As well as putting government policy into a Keynesian context, it includes links to a selection of the comment this weekend. The Guardian published the cartoon above together with the article 'Darling invokes Keynes as he eases spending rules to fight recession.'

Gap between rich and poor pay narrows in UK

The gap between rich and poor in the UK has decreased since 2000, an international survey has concluded. The Organisation for Economic Co-operation and Development (OECD) says the decline in inequality in Britain has been "remarkable". The report's author told the BBC: "...the poor have been getting richer more rapidly than the rich since 2000." But the report says the UK still has one of the highest levels of income inequality in the developed world.

Links: BBC News

The Guardian

News of recession dominates

Numerous articles in The Observer today about UK economic prospects ... namely that the recession is upon us. The Ernst and Young Item Club will warn this week that we are in the grip of a severe economic slowdown at the same time as GDP figures are widely expected to confirm that a recession is already underway. Item expects GDP to decline outright next year by 1% - the first full year of decline since 1991. It predicts a gradual recovery in 2010, with the economy recording growth of just 1%. Consumer spending would be hard hit over the next two years, as households try to rebuild their finances in the face of sickly income growth and plunging property prices. Link to Ernst and Young There isa good report of the forecast on the BBC News site. Link

There is an interesting view of the likely impact of the recession and the suggestion that it will be nothing like the one that gripped Britain in the early Eighties. It will hit people in different industries - finance and leisure, not manufacturing. And London, not the North, will bear the brunt. Link: It's grim down South

Will Hutton highlights that aspect of a recession that has the most impact on individuals - unemployment. 'Over the good years unemployment came to be characterised as a matter of choice; there was work out there if you wanted it or could be bothered to get out of bed. It has been a controversial argument; worklessness has always been part of a vicious circle of self-reinforcing lack of self-worth and poverty of opportunity, tending to be clustered in areas of deprivation. It is rarely if ever a matter of choice. People want to work. Human beings want to realise our potential and dreams. Work provides sustenance, meaning and structure to our lives. It is where we meet the bulk of our friends and partners. In a recession the argument that the unemployed are unemployed by choice will not wash. To stand idly by is to condemn our fellow citizens to poverty, futility and meaninglessness.' It is the young (school and college leavers, new recruits) who have yet to show their usefulness and to acquire new skills who are affected first. He goes on to outline measures which should be taken to inject spending power into the economy, the quickest and most effective, ironically, by putting cash into the hands of the unemployed. Raising unemployment benefits and increasing cash payments should be a priority - it is not just that need the cash but that they spend it the fastest. The next most effective measure is to increase spending on the national infrastructure. Link to article

See Geoff Riley's excellent blog (Could the UK budget deficit reach £100bn?) for an overview of current government borrowing and the National Debt.

Momentous Day!

On the day that the UK government took a substantial stake in a number of banks the BBC News site provides an excellent overview of curent developments and background to the financial crisis. Link to Global Financial Crisis

It is shaping up to be one of the most tumultuous times on record in the global financial markets.
The financial landscape is going through a period of upheaval with some major firms folding, other operations merging and a limited number of companies in both the Europe and the US, being rescued at a governmental level. Link: Financial Crisis in Graphics

The Guardian published an article outlining the likely effects of a recession on the real economy. Link to article

The 2008 Crash

Really good supplement in yesterday's Observer on The 2008 Crash.

Will Hutton presents 'A Short History of Modern Capitalism' explaining that whilst it has been defined by long periods of growth there have been severe convulsions, induced mainly by a financial crisis. Stage one, lasting from 1899 to 1929 was an age of modernity, characterised by the devlopmennt of the automobile, aeroplane, radio, skyscraper, ocean liner and a whole range of domestic electrical appliances. Then came Convulsion one, the Wall Street Crash followed by the Great Depression. Stage two, recovery followed by reconstruction after WW2 lasted from 1993 until 1973. It was charactersied by government intervention and mangement of economies. Oil price rises and stagflation were the prominent features of Convulsion two from 1973 to 1979. Stage three saw deregulation under Thatcher and Reagan and the rise of globalisation, leading to the financial crisis we have today with too much debt, too little capital and excess greed. (Link to article)

Other sections detail the start of the credit crunch and assess its impact on Britain and how it swept across the world. Will Hutton suggests that ' ...as our financial system lies onthe brink of collapse, it is time to build a new one, based on fairness instead of naked greed, and with long-term commitment to building businesses and supporting investment.' (Link to the supplment 'The 2008 Crash')