In the PBR the Chancellor, at a stroke, doubled government debt to more than £1 trillion. The Conservatives warned at the time that this sort of economic recklessness would weaken market confidence in the UK economy.
Figures released this afternoon appear to show this is already happening and as a consequence the market view of the risk of the UK Government defaulting on its debt has reached a record high. The Tories say...
"The markets now rate the default risk for UK Government debt higher than that of Portugal, Belgium, the Netherlands, France, Finland, Germany and Norway, a judgement largely based on the government's decision to take on unprecedented borrowing in last week's Pre-Budget Report. Over the last year, the perceived default risk for the UK has increased almost 15-fold.
"The cost of hedging against default on bonds is shown by the credit default swap spread (the CDS spread). On December 1st, the closing spread on UK 5 year government debt was 99.4 basis points. On December 2nd, Bloomberg reported that the intra-day credit default swap spread for 5 year UK government debt had reached a new record high of 106.5 basis points. On December 3rd 2007, the CDS spread was 7.2 basis points.
"German government credit default swap spreads on December 1st were 38.1 bp, Norway: 32.3 bp, Finland: 48.4 bp France: 54.4 bp, Netherlands: 66.1 bp. Belgium: 74.5 bp and Portugal: 99.2 bp."
No wonder Fox News had that ticker about Britain going bankrupt. Can Gordon Brown really keep a straight face next time he tells us that our economy is better placed than our main competitors? He must know what an outright lie he is telling, or is he doing the equivalent of a spolit child sticking its fingers in its ears and shouting "La la la, not listening!"?