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Friday, 11 February 2011

How big is the deficit?

Well we all know that it is £170 billion a year, but what does that mean in real terms?  What is a meaningful international benchmark for that sort of number.

Well Saudi Arabia produces 9.764 million barrels of oil a day and the Brent crude price for oil is $101 at the moment, so that runs out at about £240 billion a year.  Now, not all of that money goes into Saudi hands because they rely on foreign operators and have to import foreign manufactured equipment and expertise, but we can assume that at least £200 billion gets into the Saudi economy.from oil, and that is with oil standing at a relatively high price.

And that is barely more than the UK government deficit.  So one way of looking at the UK deficit is that it pumps as much cash into the UK economy as oil puts into the Saudi economy.  The difference being that whereas the Saudi Oil money is theirs free and clear after they have sold their oil, the UK government borrowings are going to have to be repaid.

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