Foreign Exchange Rates UK, National Debt And How Britain Owes Over £1 Trillion

May 8th, 2012

Foreign exchange rates UK are very much affected by a countries national debt along with many other economic factors outside of discussion within this article. The UK now owes over £1 trillion which is a very daunting prospect. You would wonder why one of the world’s richest countries is up to its neck in debt and how this might position us against other global foreign currency markets.

At the end of every year the government will have run up a significant deficit in the annual budget. This essentially means they have spent more money than they can claw back in taxes. The gap has to be filled somehow, so we undertake a form of foreign exchange and sell on our government bonds to overseas markets, we also sell to UK  investors i.e. large corporates and financial institutions.  The catch is that these bonds (otherwise know as gilts) have to be paid back in full, with interest added. This is how our national debt is calculated; it is the sum of all these loans, which has a big impact on our countries finances and foreign exchange rates UK.

At the present our national debt is growing at an alarming rate. To put things into context, in 1976 the UK economy went bang, at this time our budget deficit was 6% of GDP. In 2010, that deficit topped 11%! In the past our debt burden was at its heaviest following World War II.

Like any form of loan, if the loan either isn’t used wisely or not paid back when it should, interest rates rise and we end up borrowing more.  When this happens and governments run up massive national debts it is generally the public who suffer in the form of increased taxes to help plug the gap. This can run into the billions annually and leaves many people, particularly those on low incomes, struggling on a day to day basis.

Younger generations will not be too thankful to us for re-mortgaging their future. National debt, at best will be like a ball and chain around our children’s necks. Even worse still, if lenders get too worried about the future of the UK, they could retract their lending and leave Britain in a far worse situation than simply a large national deficit to contend with.  If lenders lose faith in the pound there could be devastating consequences for our country and our lives and ultimately our foreign exchange rates UK, which will decline as people try to escape our economy in search of a safer option.  For all of your foreign exchange needs visit us at Best Exchange Rates UK.