Financial markets concerned about budget deficit
Today's revelation of the first ever government budget deficit in January, since records began, has spooked many investors in the money markets and the currency markets. After the announcement of a £4.3 billion deficit for last month we saw the pound come under more pressure and gilt yields move higher which will increase the cost of borrowing for the UK government.
While it is dangerous to take one month in isolation there is no doubt that the UK budget deficit is in real trouble and we could yet top the £178 billion forecast some time ago. Initial hopes of a rebound in 2010 are now starting to fade and many analysts are even talking about a triple tumble recession as opposed to a double dip recession. However, before we write off any possible UK economic recovery we need to see how consumers and businesses react in the first quarter of 2010. This will be a vital time for the UK economy amid signs that consumer confidence and business confidence is starting to waiver.
While perhaps difficult to comprehend, there is a possibility that a reduction in consumer and business confidence could effectively "talk the UK" into a further economic downturn. These are vital times for the UK economy!
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