Pound Drifts Lower on UK Record Deficit

123jump.com Staff
18 Sep, 2009
New York City

The pound fell and is likely to trade weak as UK struggles with rising cost of bank bailout and falling tax receipts. UK government debt surged to 57.5% of GDP and is likely to surpass 60% by the end of fiscal 2010.

[R]6:00 PM London – The pound fell and is likely to trade weak as UK struggles with rising cost of bank bailout and falling tax receipts. UK government debt surged to 57.5% of GDP and is likely to surpass 60% by the end of fiscal 2010.[/R]

UK government borrowed £16.1 billion in August to fund bank bailout and lower tax revenues. The monthly borrowing was the highest ever in August and jumped from £9.9 billion according to the latest data from the Office of National Statistics.

The UK debt liabilities have surged in the last two years as the bank bailout cost increased and government collect declining taxes from weak economy. UK debt as a percentage of GDP has surged to 57.5% in August and reached £804.8 billion.

The government receipts declined 9.2% in the month as corporate tax collection declined 49% and value added taxes receipts fell 13% but spending increased 2.9% and net social benefit spending increased 7.4%.

In London FTSE 100 Index closed higher 16.27 or 0.3% to 5,180.17 and the pound declined to $1.6277 and 1.10 euros.

The pound fell after the release of data on the worries that as the government tightens its belts the monetary policy may remain lose to accommodate the government spending.

UK Treasury forecasted deficit of £175 billion for the current fiscal year ending in March 2010 and in the first five months of the year the deficit has surged to £65.3 billion from £26.1 billion a year ago.