Martin Wolf: The justification for a fiscal surplus is that public debt needs to be lowered to cope with future shocks. But that is far from the only risk to economic stability. The mistake, yet again, is to treat the UK economy’s past and prospective risks as fiscal. They are also financial. The UK ran a current account deficit of close to 5 per cent of GDP in the third quarter. The OBR believes, optimistically, that this will fall below 2 per cent of GDP by 2020, when the government’s financial surplus will be 1.5 per cent of GDP. According to the OBR, by then the household sector will be running a financial deficit of more than 3 per cent of GDP, a swing of 4.6 per cent of GDP from its surplus in the third quarter of 2014. If, as seems more likely, the current account deficit will remain far higher, the household’s financial deficit will need to be much bigger still. This is unlikely to occur without another housing-linked credit boom. Yet this obvious risk with the planned move into overall fiscal surplus is being ignored.
Posted on: Thu, 04 Dec 2014 11:32:44 +0000
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