Drop The Shovel

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What's going on?

The UKs financial hole is only getting deeper: the countrys Office for Budget Responsibility (OBR) warned of a chunky increase in the governments borrowing on Monday.

What does this mean?

Everyday Brits are having trouble budgeting, and it looks like the governments no different. The OBR now expects the UK to end up around 100 billion ($118 billion) short (tweet this) thats the gap between what its spent and what its made in tax in three years time, a jaw-dropping leap from the 30 billion ($35 billion) prediction it made in March. At least half of that increase is down to higher interest rates: as they ramp up, so do payments on the countrys current outstanding debt and boy, are they ramping up.

Why should I care?

For markets: Algebra 101.
If the OBRs number crunchers have done their math right, that gap between government spending and tax earnings will be around 3% of the overall economy by 2027. Now, that isnt crazy by historical standards, and governments can usually contain debt as a proportion of an economy by making sure the economy grows more than debt. But the UK cant count on that handy trick right now: its economy has started shrinking while rising interest rates are fattening up its debt, and even the worlds best accountant cant make those books balance.

The bigger picture: Pick your battles.
The UKs battling a sluggish economy and runaway inflation, which is a tough twosome to tackle. See, a government can usually puff up an economy by upping spending and cutting taxes, but its the opposite tactics scrounging on spending and pulling up taxes that can tame inflation. And after the previous governments economy-boosting, tax-cutting efforts got spectacularly shot down, it seems this new government sees the fight against inflation as an easier win. That means spending cuts and tax rises will probably be on the menu at this Thursdays autumn statement unveiling.

Originally posted as part of the Finimize daily email.

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