As the United Kingdom’s own experience with earlier sterling crises amply attests, the last thing that a country not paying its way in the world needs is a period of political instability. Sadly, that is what seems to be in prospect for the United Kingdom as it goes to the polls on Thursday, May 7 in one of the closest election campaigns in living memory. The result of that election is all too likely to produce a weak coalition government about which there will be doubts either as to its ability to address the country’s still large macroeconomic imbalances or else its ability to keep the United Kingdom in Europe.
Over the past few years, the British economy has comfortably outperformed that of continental Europe. In particular, whereas the eurozone economy has yet to regain its pre-crisis 2008 peak, the U.K. economy has now surpassed that peak by around 3 percent. Similarly, whereas the eurozone’s unemployment rate remains stuck at 11.25 percent, that in the United Kingdom is now around 5.5 percent.
However, the U.K. economy remains characterized by twin deficits that make it very vulnerable to any change in foreign investor sentiment toward the country. At around 5.5 percent of gross domestic product (GDP), the U.K. has the largest budget deficit of the G-7 countries, while at over 5.5 percent of GDP the U.K. has its largest external current account deficit since 1948.
Full text of this article can be found at TheHill.com.
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