My dear Darling. What have you done?

Inquiring minds are pondering the Record U.K. Deficit, Limiting Room for Stimulus.

Chancellor of the Exchequer Alistair Darling today will deliver a U.K. budget with what may be the biggest deficit on record, limiting his ability to counter the worst recession since World War II.

The shortfall this year may jump to 160 billion pounds ($232 billion), or 11 percent of gross domestic product, according to a survey of 24 economists conducted by the Treasury. Darling, who estimated an 8 percent gap in November, will announce his figures to Parliament at 12:30 p.m. in London.

“The U.K.’s fiscal position is worsening so rapidly that any stimulus measures in the budget are likely to be modest,” said Michael Saunders, chief western European economist at Citigroup Inc. “When it is most needed, fiscal policy will not be able to act. This is a major policy failure.”

Last month, Brown retreated from calls for a new fiscal stimulus after Bank of England Governor Mervyn King said the Treasury should be “cautious” about the deficit, which Citigroup says is the biggest in more than a century, excluding the two world wars.

Darling has said Britain’s economy won’t bounce back before next year, later than he anticipated in November, when the Treasury forecast a contraction of no more than 1.25 percent this year. The median forecast of analysts surveyed by the Treasury now is for a drop of 3.7 percent of GDP, the worst since modern growth records began in 1948.

Those who think the US is a basket case need only to look at the UK to find a bigger one.

Mish

GlobalEconomicAnalysis.blogspot.com