The United Kingdom, in the middle of its own debt crisis, shares common ground with beleaguered Greece, says Pimco’s U.K. portfolio manager Mike Amey.
“The U.K. has some similarities with Greece, in particular the government deficit,” he says.
“We start from a better initial level of government debt, but the annual borrowing level is very similar,” he told the Financial Times.
The British deficit is forecast to reach 12.6 percent GDP in the next year, almost matching the 12.7 percent Greece produced last year.
“But we have crucial differences as well,” Amey said.
The key difference is that the United Kingdom has its own currency, he says.
“That means the U.K. can deal with its deficit through cutting its spending or by basically creating more of its domestic currency base.”
Pimco is looking for more of the latter, which is why it’s bearish on U.K. bonds.
“Devaluation is what worries us,” Amey said.
“When we look at the U.K. as bond investors, the things that worry us are the level of debt and the longer-term inflation rate.”
The currency remains vulnerable, he says. “And if the currency comes under further pressure, we will import more inflation.”
But some say a weaker pound will help the U.K. economy by boosting exports.
“Exports . . . are looking very good for next year,” Peter Spencer, chief economic adviser to Ernst & Young’s ITEM Club, told Bloomberg.
“The underpinnings for the economy are getting a lot stronger.”
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