Danger Signals for Britain

Whatever the government's rhetoric and a positive spin, Britain is no where near out of the financial trouble. The country, already in deep debt, has doubled its indebtedness in the last 3 months alone.

As the unemloyment situation has become worst, social security payments have ballooned and the tax collection has hit a new low, Britain has taken on £41 billion in new debt just to keep things moving. This new debt equates to £700 for every citizen of this country.

Higher debt will invariably mean that foreign investors will stop funding British debt. To fill in the gap, it will almost certainly lead to higher interest rates - not good for employment or home owners as already struggling people will have to face the threat of repossession of their family homes.

Additional borrowing
Observers believe that the country is on target to borrow additional £175bn this year, as the chancellor predicted at the start of the year. Many experts say that this could easily touch £200bn mark - which translates to over £3000 for every citizen.

Some people say that Britain is not the only one in trouble as the whole world is facing the same financial crisis this country is. However the thing is: Britain needs to borrow even more to get through the mess.

Although most other European countries operate in the same financial systems, British wooes are more accute than the most. UK is set to borrow three times as much as Italy, and twice as much as Germany and France this year.

Some optimists believe that the recession may start to ease off in a couple of years. But it will take a while for the economy to get back on track. Country is still likely to be in deficit to the tune of £120bn by 2014.

Good News
However the good news is: many international investors are still giving UK benefit of doubt and buying the gilt, which is keeping the interest rates low. This suggests that foreign investors do not think that the situation is as bad or dire as it appears on the surface. However situation may have to change rather quickly, as the International Monetary Fund (IMF) warned last week that "this benefit of the doubt is not going to last forever".

IMF perhaps has 1970s in mind when investors decided that the monetory policy remained too loose and decided to pull the plug from funding Britain's deficits. IMF had to step in to rescue the country going bankrupt.

The "danger signals are flashing", comments Liam Halligan in The Sunday Telegraph. Since March, when quantitative easing began, gilt yields have climbed as prices have fallen. This is even although the Bank of England has been buying the gilts back it issued to keep the price artificially up.