UK shares set to rise ?19 Aug 2023 08:28
“Forget fears about Britain’s debt – and prepare for stocks to soar. Doom-mongers have created a ‘wall of worry’ creating perfect bull market conditions. With fears of debt swirling in both America and Britain, this August is proving no holiday for many investors. Fearful commentators see ever-costlier inflation-linked bonds wrecking Britain’s economy, while Fitch’s “shocking” US credit downgrade fans the fear flames.
Tune down the terror. “Sustainability” worries are overblown – debt doesn’t spell doom for either economy. Stocks see the reality I will detail, even if many people can’t.
Britain’s ratio of debt to GDP has been attracting headlines, but it is still basically at the same rate it has been at since March 2021
Such fears abound on both sides of the Atlantic. In Britain, consumer prices continue slowly cooling on a year-over-year basis. Yet still-hot inflation rates mean the fretting continues regardless. Some say the higher interest burden makes Britain akin to a second-world country, particularly at risk of default or budget strain. Further, the UK’s debt-to-GDP ratio exceeded
100pc in June – a first since 1961 – compounding concerns and prompting calls for deeper spending cuts.
America’s national debt stole when US credit ratings agency Fitch downgraded long-term US debt a notch from a perfect AAA to AA+. The downgrade sparked fears of an alleged US “debt bomb” – a theoretical “vicious cycle” of borrowing to service debt, which would drive interest rates higher, forcing more borrowing and eventually inducing deep recession.
Ratio of debt to GDP, which although relatively high is still down from 134.8pc in the second quarter of 2020
Meanwhile, many say US debt-to-GDP is even higher than Britain’s: 118.6pc as of the first quarter of this year. With trillion-dollar deficits flying left and right, Fitch expects government spending to keep ballooning. It claims US debt is getting unwieldy with rising interest costs – whilst also citing political acrimony in its downgrade.
Wrong. Despite all these widespread fears, British and American debt are both quite manageable. Take endlessly-fretted debt-to-GDP: while America’s 118.6pc is relatively high historically, it is down substantially from Q2 2020’s 134.8pc. As for Britain’s debt load, it draws abundant headlines, but it basically matches levels since March 2021.”
Sign In
Follow the stocks
