Is Britain's Stimulus Plan a Wise Move? - by Mark Scott
The economic picture in Britain—Europe's second-largest economy—is getting ugly. The country's GDP growth has started to slow, unemployment levels have risen at their fastest rate in almost two decades, the value of British real estate has fallen 15% in the last year, and the pound has lost a quarter of its value against the dollar since midsummer. To bolster confidence, Britain's Prime Minister, Gordon Brown, already has poured billions of Pound Sterling into the country's financial-services industry. Now, his attention has turned to the wider economy. The country's public finances—already facing a roughly 4% deficit—will come under additional strain as policymakers take on more debt to jump-start lagging consumer spending. As a result of the new stimulus package, public borrowing will top £118 billion ($178.6 billion) next year, equivalent to approximately 8% of Britain's total GDP. To pay for these extra costs, experts figure taxes eventually will have to be increased and government spending slashed.
"We've never had a package like this before in light of the huge structural deficit we currently find ourselves in," says Geoffrey Wood, professor of economics at City University's Cass Business School in London. "An increase in public spending could be ill-advised to help strengthen the economy."
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