The UK economy sits ‘on a bed of nitroglycerine’, investors warned

http://www.dailymail.co.uk/news/article-1246389/Bill-Gross-UK-recession-The-British-economy-sits-bed-nitroglycerine-investors-warned.html

Gordon Brown’s election strategy was dealt a further blow today after the boss of the world’s biggest bond house warned investors to avoid the UK economy.

Bill Gross, who runs Pacific Investment Management Co mutual fund, said the British economy was lying on ‘a bed of nitroglycerine’.

In his monthly newsletter, Mr Gross said: ‘The UK is a must to avoid. Its gilts are resting on a bed of nitroglycerine.

‘High debt with the potential to devalue its currency present high risks for bond investors.

‘In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 0.5 per cent and lower.’

The warning comes a day after it was revealed that Britain had limped out of recession with an anaemic return to growth that raised fears of a second downturn.

Economists said the fragile recovery suggested a real risk of a ‘double dip’, in which the economy plunges back into the red.

Output rose by 0.1 per cent in the final three months of last year. Production shrank a calamitous 4.8 per cent over the whole of 2009 and is down 6 per cent since 2008,  making the recession the worst since the 1930s.

And separate figures from the International Monetary Fund showed the downturn was six times worse than the global average.

Mr Gross recommended shifting assets to Asia and developing countries and on the sovereign debt front said he favored Canada.

The G7 industrialised nations have ‘lost their position as drivers of the global economy’ and will likely reel for years from the effects of increasing indebtedness, Mr Gross added.

But Britain was a ‘must avoid’.

Mr Gross’s warning is doubly embarrassing for Labour because Pimco’s European investment team is headed by Andrew Balls, brother of Mr Brown’s closest ally the Schools Secretary Ed Balls.

The weak growth figures, which were well below City forecasts, are a major blow to Mr Brown, who has pinned his election hopes on an economic recovery.

There was speculation last night that the Prime Minister could even call a snap general election next month to avoid the need for a Budget and pre-empt the next set of growth figures, due in April.

Downing Street said he was ‘confident but cautious’ about growth. Alistair Darling raised eyebrows yesterday by insisting that he ‘absolutely’ stood by forecasts that growth would hit 1-1.5 per cent this year.

The Chancellor said the figures underlined the need to continue Government spending to support the economy.

He said Tory plans to cut spending now would ‘end up wrecking the recovery’.

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in some ways the UK economy has been hit harder than the USA..when the money printing stops..its time to get off the merry-go-round..

401

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~ by seeker401 on January 31, 2010.