Rather than try to reduce it by austerity, inflation or default, the government should focus on keeping the rate of economic growth above the cost of servicing the debt.
Investment Update: Dealing with rising UK debt: not all options are bad
26 November 2020
The fiscal response to this year’s unprecedented recession will drive the UK’s net debt to a record £2.3 trillion by the end of March, according to the official projection from the Office for Budget Responsibility released today. Up from £1.8 trillion last year, it will exceed the size of the economy for the first time since 1963. In the Spending Review, the Chancellor has not announced plans to pay down the debt in an accelerated manner. By 2023-24 the current budget deficit (day-to-day spending) will still be 1.2% of GDP compared to 0.6% in 2019-20. Net investment will be 2.9% of GDP, up from 1.9% in 2019-20. As investors, we are relieved, a premature – and, as we shall set out, misguided – tightening of the purse strings is one of the biggest risks to growth over the next few years, as was the case between 2010 and 2015. Of course, many of you will be asking how will all this debt be paid for?