Unemployment in Britain Hits Highest Point in 15 Years

Jim O’Neill, Goldman Sachs asset management chairman, was quoted saying of the unemployment numbers, “This is obviously bad news for the U.K. If I were a policy maker, I’d be a little troubled.” O’Neill added that the increase in unemployment may be because of “the fiscal tightening that is coming home to roost.”

Unemployment is not the only worry the U.K. has. After Bank of England Governor Mervyn King said last week that the stimulus expansion was a response to what may be the worst financial crisis ever, Posen said it was right to be concerned about turmoil in financial markets. “I’d be a fool not to be quite worried,” he added, about the potential impact on U.K. banks from the debt crisis in the euro area. He is not the only one concerned; on Friday Moody’s downgraded a number of British banks.

“We are doing everything we can to pre-provision, to know where the weaknesses are,” Posen said. “But if we saw major sovereign losses—losses on sovereign paper and then losses on euro-area banks—then that would be a material impact on the capital position of U.K. banks. … If there is a major recapitalization of the European banking system, the U.K. has to be prepared to deal with that.”