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)