They’ve got the biggest debt in the entire world, their unemployment has hit a 20-year high, their budget deficit is amongst the worst in Europe, their inflation is the highest in 19 years, they’re already falling back into a recession and they’ve got a massive under-regulated and over-leveraged financial services sector that’s very exposed to the eurozone crisis. The British political climate is also quite uncertain, with cracks already forming in the Tory-Lib Dem coalition and possible Scottish secession from the Union in the next couple years. On top of that, we’ve seen that the United Kingdom is isolated in Europe as well, with all the other European nations moving on without Britain after the latest European summit. Fundamentally, the United Kingdom is in terrible shape.
Forget the eurozone, 2012 is the year of the Sterling Crisis. The Bank of England is still quantitative easing like there’s no tomorrow and will soon hold no less than two-thirds of all British debt. That’s the reason why yields on British gilts are so low, not because the United Kingdom is seen as a safe haven. Investors aren’t fleeing into toxic British debt, the debt is being monetized. In other words, money is being created out of thin air to buy British government bonds up and thus artificially lower yields.
“Britain’s credit rating could be cut, Moody’s warns”
“UK’s debts ‘biggest in the world’”
http://www.bbc.co.uk/news/business-15820601
“UK jobs outlook is the ‘worst for 20 years’”
http://www.telegraph.co.uk/finance/jobs/8978239/UK-jobs-outlook-is-the-worst-for-20-years.html
“UK has third biggest budget deficit in Europe”
“UK inflation closes in on 20-year high”
http://www.telegraph.co.uk/finance/economics/8832528/Inflation-closes-in-on-20-year-high.html
“UK back in recession as economy shrinks for consecutive quarter”
“The UK Trail Of The MF Global Collapse May Have “Apocalyptic” Consequences”
“Coalition cracks appear as Clegg warns Eurosceptics against rejoicing over veto”
http://www.guardian.co.uk/politics/2011/dec/09/coalition-cracks-clegg-eurosceptics-veto
“Sir Gus O’Donnell: The UK faces break-up”
http://www.telegraph.co.uk/news/politics/8971787/Sir-Gus-ODonnell-The-UK-faces-break-up.html
“Europe pushes ahead with fiscal union, UK isolated”
http://www.reuters.com/article/2011/12/09/us-eurozone-idUSTRE7B30AO20111209
“Sterling Will Start Losing Ugly Sister Parade”
http://blogs.wsj.com/eurocrisis/2011/12/21/sterling-will-start-losing-ugly-sister-parade/
“Bank of England’s QE2 may reach £500bn, economists warn”
