The UK Budget 2009

If you are looking for some cheering up then best avoid today's newspaper reviews of the Chancellor's 2009 budget. In truth there were few surprises ,however, just seeing all the latest economic forecasts in print this morning made sombre reading. The greatest concern is about the UK's mounting debt burden. The total national debt now stands at 50% of the UK's national income. This compares to just 30% earlier in this decade. The debt burden can only get worse when even the Chancellor is forced to admit that the budget deficit would hit £175bn in the current financial year. Even this figure is based on a wildly optimistic expectation that economic growth will fall by only 3.5% in 2009. The Chancellor predicted a strong bounce back in economic activity which is needed to help rebalance the government's finances in coming years. In my view this is very unlikely to materialise. If we see any recovery in 2010 it is likely to be very modest indeed. One financial market that will become very important in the year ahead is the gilt-edged market. This is where I worked in the mid-1980s. Bond investors will be required to lend the UK government some £220bn this year. If this proves to be rather too much for them it could be bad news for us all. The cuts in government spending announced yesterday could be the start of much more savage moves in coming years. The political party that wins the 2010 Election will inherit a "poison pill" that is far more serious than we have ever seen before.