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Britain's credit 'more risk than McDonald's'
Hugo Duncan10.12.08
Sterling continued its slide against the euro today as the pace of economic decline quickened and the markets rated Britain a greater credit risk than McDonald's.
The pound weakened against the euro, which was up a third of a penny to 87.43p, amid growing fears sterling could reach parity against the single currency and the US dollar. The pound was up 0.4 cents against the greenback to $1.484 today.
It came after the National Institute of Economic and Social Research said the UK economy contracted 1% between September and November and warned "there was every reason to believe" it would be worse still in the final three months of the year.
The grim predictions by the leading think-tank cast fresh doubt over Alistair Darling's hopes that growth will resume in the second half of next year. The Chancellor's forecasts made in the Pre-Budget Report just two weeks ago already look hopelessly optimistic.
If the NIESR is right, official fourth-quarter data released next month will show decline of more than 1%, putting the start of this recession on a par with that of the early 1990s as High Street sales and factory output slump.
The NIESR said: "The Government faces the real risk that output will fall more sharply than it expected to the end of next year. The main problem it needs to address very urgently is the availability of bank credit." The Bank of England has slashed interest rates from 5% to 2% in the past three months in the battle to stave off a deep recession. The Government has also provided billions of pounds of funding to the UK's banking sector to boost lending to homebuyers and small businesses.
It is being paid for by hundreds of billions of pounds of extra Government borrowing which has resulted in Britain having a worse credit rating than McDonald's and other large companies. Investing in Government debt is now almost twice as risky as buying McDonald's corporate bonds, according to the market in credit default swaps, a form of insurance for buyers of such debt.
Professor Stephen Haseler, director of the Global Policy Institute at London Metropolitan University, said the pound could soon be worth $1 as an "unfortunate consequence" of Government plans to spend its way out of recession. "Britain is already in a full-scale sterling crisis," he said.
Reader views (7)
The dream is coming; the UK can go into administration and be bought up by anyone with money. A sound future is on the way.
Then again who would want it?
- Ian, Reading, England
Its only a matter of time before we get food riots and the country turns to Anarchy. Of course, Gordy will have the protection and not a thing to worry about... as usual.
I think its high time the Government thinks about what public money is spent on, we clearly can't afford to put everyone else based on some Human Rights ideology.
In the states, criminals pay to be bailed! We might do the same if anyone up in Parliament has a brain.
- Steve, london
House for sale: 250,000 portions of large fries or £300,000
- Jason, Chiswick, London
1 McPound = 2.3 pounds sterling.
- Neil, london uk, Airstrip ONE .
And this Gov reckons we will be out of the mire by 2010! This problem is like a Tsunami wave - the implosion of corporate profits that we will feel next year will greatly reduce the tax receipts for the Treasury, unemployment will rocket and dependancy on social welfare will rocket with it, Britain goes bankrupt.
- Wallytrader, London
Not really surprising when our Prime Minister's only tactic to curb a recession brought on by people borrowing more than they could afford is to ask them to borrow more! Perhaps the 'do nothing Party' as Brown likes to name the Tories, recognize that when you are in a hole, the best policy is to stop digging.
Brown is digging all of us into a deeper and deeper hole because he wants to be seen to do something. Has not he done enough for us already?
- Stephen Rothbart, Prague, Czech Republic
What other result from its misguided policies would you expect from this bunch of Labour loonies.
- Frederick, London UK
