HOWZAT

Another bit of the caricature is that Britain’s indebted households, government and company sector are in hock to the rest of the world, while Britain’s banks have built up a reliance on international wholesale markets of Icelandic proportions.

The truth is that UK debt, whether owed by people, businesses or the chancellor, is overwhelmingly domestic. UK savers, directly or indirectly, lend the lion’s share of money to UK borrowers.

UK-owned banks do have foreign current liabilities, but at £1,300 billion these are some 90% of gross domestic product, compared with about 220% of GDP in Switzerland and nearly 700% of GDP in Iceland.

Overall, since 1995 Britain has had net foreign liabilities — foreign-owned assets in Britain being worth more than UK assets abroad. Curiously, Britain still earns more income on those foreign assets than foreigners do on their UK holdings.

The latest figures for those net foreign liabilities, £309 billion, or about 20% of GDP, show a fall of about £100 billion over 12 months. This is not a huge imbalance. A side effect of the pound’s fall, by increasing the sterling value of overseas assets, will be to reduce net liabilities further.

The oddest thing about the sterling story is that it stems from the idea that Britain will have a worse recession than the eurozone. Europe entered the recession with an over-strong currency and a central bank cautious about cutting rates. Britain has a weak currency and lower rates. I know which I prefer and it is why most economists think Britain will bounce back more quickly than euroland. The recession, moreover, will expose divisions and disparities within the eurozone. Sterling will also bounce back — it is 11% below its 10 and 30-year averages against the dollar and about 15% below fair value against the euro — but for the moment its weakness is useful.

So what about that question of euro entry? Paul Mortimer-Lee, head of market economics at BNP Paribas, a French bank, has no eurosceptical axe to grind. He argues that, not only would Britain’s problems have been worse had we been in the euro (think how much more powerful the housing boom would have been with interest rates significantly lower), but that this is just about the worst time to think about joining.

I agree. Britain tends to turn to Europe at times of trouble, with disastrous consequences. Entering the exchange-rate mechanism in 1990, as recession was under way, made a bad situation much worse. The same applies to the euro now.

For those who missed Brown’s interview with Sir Alan Sugar in The Sun last week, the prime minister’s response on the question of euro entry was “No, no, no” for “this year, next year and beyond”. Euro entry should remain in the freezer. I suspect it will.

PS: It has been a statistical curiosity that until the third quarter of this year Britain had been through its longest continuous expansion on record, with GDP growing every quarter since the spring of 1992, 63 in all.

Now Andrew Sentance, a member of the Bank of England’s monetary policy committee, has disputed that in a speech a few days ago. He has a more robust definition of recession, an outright fall in GDP one year to the next. On this basis, the “golden age”, 1948-73, a 26-year expansion, was the longest. There were a few two-quarter “technical” recessions during that period but Sentance does not think they count.

So this beats what he describes as the 16-year expansion since 1992 (or should it be 17?), which will formally come to an end when GDP falls next year. Third longest, interestingly enough, was the upturn that began in 1932 and lasted until 1943, continuing through even the Battle of Britain and the Blitz.

david.smith@sunday-times.co.uk

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