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As debt soars, the cost of servicing it keeps falling

Summary:
Good news for the British government’s finances An awful lot has changed since Rishi Sunak, the chancellor, unveiled his budget in March. Britain’s economy looks set to experience an unprecedentedly rapid and deep recession. What is more, the government, through actions such as the furlough scheme to support employment, is choosing to bear an unusually large share of the initial costs. The result will be much higher government debt than previously anticipated. And yet the actual cost of servicing that higher debt may well turn out to be lower than was expected back in March. There is now so much uncertainty that the official government forecasters—the Office for Budget Responsibility (obr) and the Bank of England—have declined to issue their usual forecasts, instead presenting

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Good news for the British government’s finances


An awful lot has changed since Rishi Sunak, the chancellor, unveiled his budget in March. Britain’s economy looks set to experience an unprecedentedly rapid and deep recession. What is more, the government, through actions such as the furlough scheme to support employment, is choosing to bear an unusually large share of the initial costs. The result will be much higher government debt than previously anticipated. And yet the actual cost of servicing that higher debt may well turn out to be lower than was expected back in March.

There is now so much uncertainty that the official government forecasters—the Office for Budget Responsibility (obr) and the Bank of England—have declined to issue their usual forecasts, instead presenting what they call “scenarios”. More detailed modelling by the Resolution Foundation shows what may be to come. According to the think-tank’s three-month lockdown estimate, the debt-to-gdp ratio will soon head back to the 100% mark—a level not seen since the 1950s, when Britain was still burdened with the costs of fighting the second world war.

The Economist

Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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