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Will the Greek crisis affect the UK?

As confusion reigns regarding the Greek debt crisis there is concern about a potential increase in the cost of debt for the UK government. This comes at a time when the UK is £1.3 trillion in debt with a budget deficit of around £160 billion which is unlikely to fall below £80 billion a year over the next four years. As a consequence, the UK government will need to refinance large chunks of national debt over the next few months and years, which could come at a cost to UK public services.

Yesterday saw the collapse of Greek debt bonds with yields rising to above 11% as the investments were effectively labelled as "junk" by credit rating agencies. Since the Greek downgraded we have seen a reduction in the credit rating for Spanish and Portuguese national debt with more downgrades likely in the short to medium term. Whether or not the UK credit rating will come under pressure in the short term remains to be seen but there are growing worries across Europe.

Many people are suggesting that this debt crisis could literally bring down Europe in the short term and impact upon the worldwide economic recovery which is still very fragile.

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