More confusion as Alistair Darling speaks out
Alistair Darling, the Chancellor of the Exchequer, today suggested that the UK government would look to cut the public spending deficit sooner than expected if the UK economy proved to be stronger than many analysts are forecasting. In yet another U-turn by the government this "gilt market friendly" statement would appear to be purely and simply a political move because the Chancellor has refused to reveal spending projections for each government department.
Investors in the gilt market are concerned that the UK government may well be concealing the full extent to which the UK finances have crumbled over the last couple of years. Despite many of the headline grabbing promises in the pre-budget report there has been very little "meat on the bone" which led to a significant sell-off in the gilt market. This is the area of the UK investment market which allows the UK government to issue bonds and raise funds in the short term to finance the government budget.
The sell-off last week led to an increase in yields which effectively equates to more expensive borrowing costs for the UK government. When you bear in mind the enormous amount of money which the UK government will need to raise in the short to medium term, any significant move in the market will impact on the amount of money the government will actually be able to raise.
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