2010 Will Not Be Good for the UK Says Report

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Gordon Brown on the run in 2008's crisis | Photo 02

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Bankers Morgan Stanley believe the UK will experience currency flight and a full-blown debt crisis brought on by its mountains of bailout debt, and a political crisis resulting from its 2010 election. 

Called 'Tougher Times in 2010', the report forecasts a hung parliament in the country as neither the unpopular Labour Party nor the Conservatives are able to win the public's confidence. The Labour Party are now seen as the architects of the catastrophic banking crisis and even worse, are seen as at fault for the country's financial bubbles being spread around the world. While the prime minister, Gordon Brown, has been praised for his swift response to the crisis when it erupted, he has not been able to escape blame for allowing the crisis to brew during his years in charge of Britain's finances as its chancellor. 

The report believes “In an extreme situation a fiscal crisis could lead to some domestic capital flight, severe pound weakness and a sell-off in UK government bonds. The Bank of England may feel forced to hike rates to shore up confidence in monetary policy and stabilize the currency, threatening the fragile economic recovery.”

The country's currency, the pound sterling, could see drops in value not seen since the industrial revolution in the 18th century. The Labour Party has already overseen the first bank run in the country's history since the 17th century, when Northern Rock had to be nationalised in 2007. 

While the UK's financial services sector is on life support from the public purse - and represents a massive drop in revenue for the government since it was propping up the public finances by 27 percent during the boom - there is a lifeline for the economy: 65 percent of earnings for FTSE companies in the UK come from overseas. This would increase their domestic purchasing power if the pound were to drop in value. 

A report by the French bank, Societe Generale, painted an even gloomier outlook for 2010 in a recent report. It warned of far worse crises to erupt, which would lead to the largest wealth transfer in human history, from the broke developed nations to emerging economy countries like China and India.