German and UK Governments Reveal Growing Fiscal Strains

The German and U.K. governments on Thursday became the latest to reveal growing fiscal strains as they struggled to limit damages of the economic downturn.

Rising social outlays and plunging tax receipts have widened budget gaps and driving up borrowing requirements, according to reports issued by both governments.

The reports, in line with budget updates coming from elsewhere in Europe this summer, underscores the pressure on governments as most forecasts see a long and shallow recovery, dogged by high unemployment , Wall Street Journal reports.

Sterling rose and gilt futures fell after the stronger than expected figures boosted investor confidence that Britain's worst recession in decades is bottoming out.

"The gains in retail sales give us greater confidence that GDP will rise in the third quarter, meaning that the UK exits recession," said James Knightley, an economist at ING.

European peers Germany and France pulled themselves out of recession in the second quarter while the economy shrunk by 0.8 percent , New York Times reports.

"The retail sector clearly has built up a decent amount of positive momentum, which could well last a few months more," said Vicky Redwood at Capital Economics.

"But we remain pretty gloomy about the outlook for sales further ahead - not least because of the looming tax rises on the horizon." , BBC News reports.

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