Having already fallen sharply, sterling is believed by many financial and political commentators to be due the kind of crisis that could mean the UK would have to go cap in hand to the International Monetary Fund. The fear is that the explosion of public debt and gilt issuance, exacerbated by the UK government’s increasing financial exposure to the banking system, will lead to a sovereign default crisis in which sterling would collapse. It is a good scare story, and it is also a hysterical one for four reasons.

First, the UK’s public debt prospects are serious but by no means alarming yet. The government estimates that UK public debt in 2009-10 – including financial intervention measures, but excluding contingent liabilities such as banking system credit and loan guarantees – will amount to just under 55 per cent of gross domestic product. Official estimates for growth in 2009-10 in the pre-Budget report were far too optimistic – and therefore the subsequent figures for loss of tax revenues in this recession are too high. Allowing for this – and for sober estimates for the government’s share of losses in the banking system over 2009-10, and a further round of bank recapitalisation – UK public debt may have risen to about 70 per cent of GDP by 2010.