BRITAIN FACES NEW DEBT CRISIS AS BIG INVESTOR PULLS OUT
Labour's Ed Balls' younger brother Andrew is overseeing the Pimco pullout
Wednesday January 6,2010
By Macer Hall
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FEARS that Gordon Brown has left Britain on the brink of bankruptcy intensified last night as investors withdrew from backing the Treasury’s soaring debt.
US-based investment group Pimco, one of the world’s leading bond houses, said it will sell its UK government gilts this year.
It will be a hammer blow to the Treasury’s attempt to raise up to £200billion of government borrowing amid the deficit crisis.
The embarrassment is all the more acute because the younger brother of Cabinet minister Ed Balls is overseeing the gilt sale.
As head of Pimco’s European investment team, Andrew Balls is spearheading the exit from investment in the Government.
The Tories seized on the announcement as evidence that Mr Brown’s soaring borrowing is threatening the UK with the worst debt crisis since the 1970s.
Shadow Chief Secretary Philip Hammond said: “This announcement by the world’s biggest bond house is a damning verdict on Gordon Brown’s handling of the economy and raises yet more questions about where the Government is going to borrow the £178billion it needs over the next 12 months.
“To restore confidence to the bond markets, keep mortgages down and get the economy growing, Britain needs a credible plan to get the deficit down.
“Instead we have a Prime Minister and Chancellor at loggerheads over tax and spending. We can’t go on like this.” Concern has been growing in the City and on international money markets at the unprecedented scale of the British government’s debt crisis. The Treasury is on course to borrow £178billion this year and the national debt is tipped to reach a colossal £1.5trillion for the first time in our history.
Experts fear the debt will damage Britain’s international credit rating, leading to concerns that investors will simply not be prepared to risk putting money into shoring up the government.
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It could mean the country effectively going bankrupt, with the Government being forced to plead for aid from the International Monetary Fund.
The move by Pimco was being seen as a massive vote of no confidence in the Government.
Paul McCulley, a managing director at Pimco, said: “We are currently cutting back in the US and UK because supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines.”
The decision was described by Mike Amey, Pimco’s portfolio manager in London, as “a significant policy statement”.
“Those areas of the bond market that have had greatest support from central banks will be most vulnerable as that support comes to an end,” he said.
The role of Andrew Balls in Pimco’s decision to sell UK gilts is understood to have led to dismay in Whitehall, given his closeness to his brother Ed.
Ed Balls, Secretary of State for Children, is still a key figure in Labour’s election strategy team, with a role in defending the Government’s economic stewardship.
He is also Mr Brown’s former chief adviser at the Treasury.