Economic experts analysing the level of borrowing by the UK government estimate that the Treasury are likely to borrow significantly more money than anticipated for 2014-2015. The Institute for Fiscal Studies (IFS) claim that as much as £64bn more will be borrowed, putting the Conservative/Liberal Democrat coalition under more pressure to reduce their growing deficit.
Weak economy not helping
A wider deficit could make it even harder for the government to try and engineer a sustained recovery. The more money they have to borrow will mean yet more debt, representing a further blow to the economy and the government’s prospects of re-election in 2015.
Part of the reason why the IFS expect borrowing to be higher than expected is that the UK economy remains weak. To try and prevent this from happening, the government may have to cut spending and increase tax. The UK’s current AAA credit rating may also be under threat too.
While other countries including France have had to forgo the highest credit score, the UK have been fortunate to hold onto such status, meaning they’re charged less when borrowing money. Losing it could be disastrous, according to a spokesman from spread betting experts City Index.
“UK borrowing figures remains a constant threat to the safety of the UK’s top notch triple-A credit rating. Ratings agencies have their UK rating under review and a credit downgrade could have significant consequences, especially for the pound sterling”, he said.
The threat of a ‘triple-dip’ recession looms large over the UK economy. Contraction in the last quarter as a result of disappointing retail sales and problems in manufacturing has seen borrowing go higher than expected. Other problems such as rising unemployment haven’t helped the government either.
Yet more cuts
To try and prevent borrowing from increasing as much as the IFS had initially forecast the government will be left with no option but to strengthen and add new austerity measures. Those on higher incomes are likely to feel the pinch with increases in tax and national insurance contributions.
On top of that, thousands more public sector workers could lose their jobs, putting a further strain on services. In the interest of the currency markets, traders are likely to hope that the government tries to borrow a little bit less, possibly by reducing spending in some departments.