Show Hide image

IMF warns that British public finances remain "constrained"

Public debt set to rise to 83.9 per cent in 2015.

The IMF has warned that Britain's public finances remain "constrained" and among the most precarious of the major developed economies.

In its latest research, the Washington-based fund said: "Greece, Italy, Japan and Portugal appear to have the least fiscal space, with Iceland, Ireland, Spain, the UK and the US also constrained in their degree of fiscal manoeuvre, the more so owing to the run-up in public debt projected in coming years."

It said the UK gross debt to GDP ratio would rise to 83.9pc in 2015 from 61.5pc in 2009. In the US it forecast a rise to 109.7 per cent from 62.1 per cent over the same period.

"Fiscal policy will need to react more strongly to debt than past behaviour would suggest, and governments will need to engage in reforms that place debt on a sustainable footing," the IMF said.

"In the last three and a half decades, public debt has been the shock absorber in advanced economies - going up in bad times and not coming down in good times."

The group said that recent market reaction to the risk of debt default had been overdone.

"Although the fiscal fundamentals look challenging, current market indicators of default risk seem to reflect some market overreaction," it said.