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.
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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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