Look How Quickly The U.K.'s Deficit Exploded


Morgan Stanley’s recent UK Economics and Fixed Income Strategy piece shows just how quickly and dramatically the U.K.’s government deficit just exploded. It shows how quickly a crisis can get much, much worse as tax receipts fall due to a weakening economy, yet expenditures rise due to stimulus efforts from governments and higher entitlement pay-outs to struggling citizens.

[image url="http://static.businessinsider.com/image/4b1cc71c0000000000b7a3b1/image.jpg" link="lightbox" caption="" source="" alt="deficit" align="left" size="xlarge" nocrop="true" clear="true"]
Morgan Stanley: The Treasury’s projection for Public Sector Net Borrowing (PSNB, effectively the UK’s measure of its fiscal deficit) is likely to be similar to the number in the April Budget (£175 billion). … According to Budget 2009, each 1pp [percentage point] lower growth in a year typically increases the PSNB by 0.5pp of GDP in that year (and 0.2pp the year after).

(Via Morgan Stanley, UK Economics and Fixed Income Strategy, Melanie Baker CFA, 4 December 2009)

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