Troubled U.K. Faces Debt ‘triple Whammy’
August 19, 2011 by UPI - United Press International, Inc.
LONDON, Aug. 19 (UPI) — Britain faces a “triple whammy” of sagging business confidence, inflation and unemployment that will deepen the debt burden, analyst said.
Debt solutions expert Atlantic Financial Management said the latest British data reinforced the gloomy outlook because of increased state benefit handouts to those without jobs, an inflationary spiral and continued uncertainties about prospects for business growth amid tight credit.
About 37,100 more people joined the jobless queue in July, the largest monthly rise since May 2009 and new jobs were down by 22,000 when compared with May this year, the lowest number since November 2009, when British recovery efforts were still in an early stage after the 2008 financial crisis.
“Employers are not optimistic of growth in the near future,” Atlantic Financial Management Director Kevin Still said.
The Chartered Institute of Personnel and Development said more British employers planned to cut jobs than hire new people in the third quarter this year and predicted many jobs in the public sector could be on line, too.
Still said falling interest rates on mortgages might bring some relief to homeowners but the longer-term picture in Britain remains bleak.
Other analysts saw Britain being buffeted by adverse effects of the crisis in the eurozone and poor financial outlook in the United States.
Ansgar Belke, financial markets expert with the Institute for Economic Research in Germany, cited the uncertainties of the European scene after the bailouts in Greece and Ireland. The Irish bailout appears to be working well, partly because of strong trade links between Irish and German industries but the Greek economy may need another rescue package by 2013, he said.
Other analysts still remain skeptical about prospects for a Greek recovery. The eurozone crisis worries British investors, including banks, because of high exposure throughout the region.
Other analysts said Britain hadn’t begun capitalizing on its AAA credit rating but cited indications that investor perceptions of the United Kingdom’s credit worthiness might become a factor in drawing more funds into the British economy.
Analysts said the hysterical predictions immediately preceding the Standard and Poor’s downgrade of the United States showed that expert forecasting remains deeply flawed.
“Some pundits were suggesting that a downgrade would precipitate a collapse equivalent to a Lehman Bros. every two weeks. Such extreme scaremongering might sell papers and might influence inexperienced investors but actual reactions show how difficult it is to make predictions,” Millie Dyson wrote on myintroducer.com.
“It also reveals the lack of leadership among politicians who are reluctant to tell their electorates how they propose to deal with national debt,” Dyson wrote.
“The Greeks have bought time with the European intervention while the Irish appear to have bitten the bullet, so where does that leave the U.K. economy following its quantitative easing and subsequent austerity cuts? Has U.K. survived or just put off dealing with reality?”
Dyson cited criticism that Britain’s response to the banking crisis had prolonged the slump and stifled its economic recovery because not enough was invested in businesses that created value.
Funds used to prop up troubled British banks essentially allowed those banks to sell their bad debts to the government and use the funds to buy good debts in the form of gilts and government bonds.