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Anzo Lim

GBP/USD: Britain Faces a New Wave of Debt

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No matter who wins the general election next month, the British government will face a new wave of debt up to 1.6 trillion pounds. British Prime Minister Johnson pledged to raise public spending to the highest level since the 1970s, ending the partys decade-long focus on restoring public finance. According to data from the International Monetary Fund (IMF), UKs debt equaled 87% of economic output in 2018, more than double of that before the financial crisis in 2008-2009.


Britains budget deficit peaked during the crisis, slightly above 10% of the GDP. Domestic investors such as pension funds and insurance companies, together with the Bank of England, held the majority of British government bond, thus offsetting the risk of foreign investors sell-off when the circulation increased. In 2017, foreign investors accounted for only 25% of those holding British government bonds. This relatively low share reflects the pounds declining position on the global market. Foreign institutional investors such as sovereign wealth funds and central banks are instructed to hold only a small amount of pound assets such as British government bonds. Britain no longer has a triple-A rating, and a deterioration of the public finance outlook means that the downgrade is considered a risk, and this does not take into account the election expenses.


Daily pivot points for GBP/USD: 1.2931---1.2939

S1  1.2901              R1 1.2961

S2  1.2875              R2 1.2995

Edited by Anzo Lim

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