Confronting the UK's trinity of deficits

THE unlucky winner of the UK election on May 7 will face three big economic headaches, focusing on a not-so-holy trinity of deficits in the public sector budget, the balance of payments current account and the finances of UK households.

The new government, undoubtedly another coalition, will need a balanced approach to reducing all these deficits. Too sharp a cut in government and household spending, if not accompanied by an improved balance of payments, could kill the goose expected to lay the golden egg, namely a balanced budget at some time in the future.

British exports could be helped along by some green shoots in the euro area although sterling's uncompetitive exchange rate vis-à-vis the euro - still well above 1.30 euros despite weakness in recent days - will reduce the positive effect.