LONDON: UK Chancellor Rachel Reeves could face a market backlash unless she makes rapid efforts to stabilise the national debt, the International Monetary Fund warns.The Washington-based fund said in a chapter of its Fiscal Monitor that debt risks in the United Kingdom “were elevated” and the “lack of credible plans for dealing with it can trigger adverse market reactions”.
It proposed tax rises and spending cuts, adding that postponing the decision would be “risky” and “only make the required correction larger”.
With debt at 100% of gross domestic product for the first time since 1961, Reeves has pledged to put stability at the heart of her first budget on Oct 30 and warned “tough” decisions will be taken.
But she has also signalled she wants greater room for borrowing to invest for growth and is considering changing the debt measure she uses to provide extra headroom.
One option would hand the chancellor an extra £53bil (US$69.3bil) of borrowing capacity, potentially testing markets that have limited appetite for new debt.
Investors are already being asked to absorb £138bil of gilts from the Treasury to fund the budget deficit in the current financial year, plus many billions more as the Bank of England unwinds its vast quantitative-easing programme. — Bloomberg
