Debt Woes And Bad Luck?

Debt woes and the question of bad luck dominate new comment on the outlook for the global and UK economies by Schroders’ chief economist and strategist, Keith Wade, and European economist, Azad Zangana.

From a global perspective, debt woes are bringing political risk to the fore. While markets remain focussed on debt problems in US and Europe, the progress of recovery is being forced to take a backseat.

It is widely expected that a last-minute deal will be agreed by the Republicans and Democrats, or that the US Treasury will find a way to meet coupon payments.

It can be said with some certainty that an agreement to lift the debt ceiling will not be the end of the story – the US could still be downgraded unless a long-term solution is found.

The UK economy, meanwhile, slowed to almost a standstill in the second quarter, leading Schroders to ask whether this is the start of a downward spiral or is there a good reason behind the disappointing growth?

Temporary factors have had a major impact on the latest set of data, the firm observes. Excluding these special factors, growth would have accelerated rather than slowed.

Underlying growth is believed to remain robust and is expected to pick up in the second half of the year. The UK government is not expected to deviate from current strategy and Bank of England should resist temptation to restart quantitative easing.

Read the full report: Download Economic _Strategy_Viewpoint_July_2011.