MercoPress. South Atlantic News Agency
Pound falls as Fitch warns of UK's ‘formidable’ debt challenge
The pound fell in late morning deals after credit ratings agency Fitch warned the debt challenge facing the UK government was 'formidable', and that cuts would have to be deeper and quicker than former chancellor Alistair Darling had planned.
The pound was down one cent or 0.5% against the dollar at $1.4393, and one cent lower against the euro at €1.2082.
Mark Bolsom, head of the UK trading desk at Travelex, said: 'The gloomy outlook from Fitch is weighing heavily on sterling this morning and will have heightened investor fears of a debt downgrade to the UK sovereign debt rating.'
Bolsom said the fact that Fitch had felt the need to comment on the UK deficit again was an indication that it is still considering downgrading the UK’s sovereign debt rating.
The note from Fitch also pushed gold to new highs, up $8.80, or 0.71%, to $1249 an ounce as investors fled from risky assets.
Fitch said the rise in public debt in the UK since 2008 was faster than in any other 'AAA' rated country, and that the UK needs to do more than almost any other advanced country to bring debt back down to more acceptable levels.
And it said the task ahead will be difficult given growth forecasts will probably be lowered.
'While a similar deficit reduction path to that set out in the April 2010 Budget, but based on more realistic growth assumptions might be viewed as more credible, it would still run the risk of leaving the UK as something of a standout relative to the deficit targets of other advanced country sovereigns,' Fitch said.
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 agency said.
It said a more ambitious deficit reduction path – with borrowing 1% lower than the April 2010 Budget throughout the medium term - would help to create a cushion against future shocks.
But the agency warned that achieving that goal through spending cuts alone would imply unprecedented falls in spending.
The comments come just a day after Prime Minister David Cameron warned the impending cuts will be 'enormous' and will affect everyone.
Today, Chancellor George Osborne will tell MPs that all public bodies will be consulted on how spending cuts can be achieved. Osborne is also expected to include a review of the role of government in the five month spending review.
Osborne has said he will take his cue from Canada's 'bloodbath budget' in the 1990s when the government cut public spending by 20% by privatising many government functions and imposing charges for previously free services.
Some suggest that following Canada would mean much more ambitious spending cuts than was signaled in pre-election manifestos.
Mark Littlewood, director general of the Institute of Economic Affairs, said that if the UK were to follow Canada’s lead spending cuts would have to be around double what was forecast in the Conservative Party manifesto:
‘Following their example and cutting public spending by around 20% would mean cutting public spending by about £140bn. This is vastly more ambitious and encouraging than anything promised in the Conservative manifesto,' he said.
By Deborah Hyde – Citywire - London
Top Comments
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Read all commentsWell I said before the most pronounced words in UK for the next 10 years will be cut, cut, cutting, size down, downgrade, interest rate, debt and country risk.
Jun 08th, 2010 - 03:30 pm 0Welcome to the club of the Banana Republics, free membership for 2 years including drinks in G20 meetings.
Here some sentence that you will have to hear in the coming years...
“Poor Britons once a wealthy nation some time ago and now seems Africa, what Wrong with these people?
“Fitch and S&P warned UK of the unsustainable level of public expending, it’s require more cuts Mr. Porusky Chief of analysis risk S&P for EU region says last night”
“The cuts were not enough and politician didn’t understand what the markets needs to get confidence in UK again, had warned Mr. Soros” Pound at risk.
“UK need deep reforms to get out of the catastrophic state of it’s economy” FMI warns.
“Good but not enough, the rise in tax in UK was a good intention but not enough to calm the market”.
“Default or not default? That is the question the lesson of Argentina 2001 crisis” Mr. Roubini from Global Economics analyzes in full depth.
UK and the lost decay a lesson to remember...
MR. Cameron is ready to hire Argentinean experts to pool out UK from the economy collapse.
Mr. NicoDin ready to help poor Britons with 10 magic measures, cut, cut, cut, cut, cut, cut and more cuts while you get slim and fit seems to be the base of his plan.
Ah! Seems that stupidity is all over the world and I thought that it was an Argentinean invention.
but at least we can console ourselves with the thought that the Argies will never have sovereignty over the Falklands natural resources
Jun 08th, 2010 - 06:26 pm 0@stick up your junta
Jun 08th, 2010 - 07:25 pm 0Of course that can help and also a good picture of the old British Empire together to a mini replica of a London Bus made in China surrendered by a portrait of Maggie T (Iron Lady).
But here some tips to face the coming days. Don’t thank me please I’m doing this because I’m so generous and good guy like you.
1- Are you struggling to buy your food, don’t worry think that you have started a long diet to get fit.
2- Have to sale your car, walking is a fantastic aerobic exercise to complement you diet and fitness program.
3- NO job, Who cares think you are on long vacations in an exotic place while you drink a margarita in your garden, fly and mosquito can help to give a desire realistic effect.
4- Would You like something more exciting? What about tourism adventure?
A trip to Brixton to take 10 Pounds from your bank account at night can give you the more adrenaline pumping you have ever experienced before in your entire life (Of course if you return alive).
5- Think how many people had working so hard for their entire life making a fortune to later spend all of it in a Caribbean beach naked, under a palm and to take hot nasty sun to get burn.
He! Mate you have archived almost these things without working hard, thanks to Mr. Tony Blair, Mr. Gordon Brown and now Mr. Cameron will turn any millionaire dream into reality.
Can you see now all things you can archive with a positive attitude. Is not amazing?
I really envy you, I cannot imagine how can I make reality the Briton dream for me.
I would have to live with that.
God blesses you to be so fortunate.
Cheers
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