New data published today by the OECD show that Britain's gross financial liabilities are set to remain close to those of the OECD average over the next decade.
New data published today by the OECD show that Britain’s gross financial liabilities are likely to remain close to those of the OECD average over the next decade. The OECD credit the Government’s fiscal stimulus as “cushioning” the downturn while calling for an “announcement of concrete and comprehensive [fiscal] consolidation plans.”
As the ONS publish data showing that Net Debt as a percentage of GDP (including financial sector interventions) has risen this month to 58.9 per cent (p.11), the OECD predict that Britain’s gross financial liabilities (a similar measure) will rise no higher than the OECD average (p.70). Gross financial liabilites do not net the UK’s financial assets such as holdings in UK banks.
As the chart below shows, Britain’s lower level of liabilities before the financial crash have given the country greater capacity to absorb record deficits.
The OECD’s country summary for the United Kingdom says:
“The economy is set for recovery, supported by improving financial conditions, an expansionary monetary policy and stronger international growth. However, the pick-up will be slow with GDP projected to grow by slightly more than 1% in 2010 reflecting strong headwinds from balance sheet adjustments, a still weakening labour market and fiscal tightening. In 2011 the recovery will gain momentum, but resource utilisation will remain low and the unemployment rate is projected to reach 9.5%. Inflation is likely to remain below the 2% target for an extended period.
“Financial sector support, monetary easing and fiscal stimulus have cushioned the downturn. While monetary policy should remain expansionary over the projection period, normalisation of interest rates will probably need to start in 2011. The weak fiscal position makes further consolidation necessary; an announcement of concrete and comprehensive consolidation plans upfront would enhance macroeconomic stability. Strengthening financial regulation and supervision would also support stability and hinder a build-up of new imbalances at historically low interest rates.”
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11 Responses to “Britain’s net debt will stay in line with OECD”
willstraw
Hi Balham,
Thanks for the engaging comments.
Agreed that sustainability is about both stock and deficit. My point is that we started sufficiently low that we had more scope to absorb deficits. This means that we can absorb record deficits (part structural, part automatic stabilisers, part stimulus) and still end up with debt that it is “in line with OECD” ie 120% GDP in Britain to 113% in the OECD. There are 30 countries in the OECD so Japan should weigh that heavily on the average.
The risk now is that bringing down the deficit too quickly could imperil the recovery and send deficits spiralling. Of course there will have to be cuts (and tax rises) but sequencing is everything.
All the best.
Will