Pimco ace tells investors to avoid UK gilts over debt fears

BILL Gross, the influential fund manager at fixed income titan Pacific Investment Management Company (Pimco), has urged investors to shun UK government debt due to fears over national borrowing.

Pimco’s managing director said Britain’s debt burden would force the Treasury to issue increasing volumes of gilts. This would usher in inflation and depreciate the pound, damaging bond returns.

Gross, who sparked a furore in January by saying the UK economy rested on a “bed of nitroglycerine”, said: “At some point the UK may fail to escape velocity from its debt trap. For now, though ‘crisis’ does not describe the predicament, that bed of nitroglycerine must be delicately handled. Avoid the UK – there are more attractive choices.”

Gross recommended German and Canadian gilts instead.

His comments came a day after chancellor Alistair Darling said the Treasury would borrow £167bn this year, £11bn below forecasts but still at a post-war high of 12 per cent of GDP. National debt will be £1.4tr by 2014.

Simon Ward, chief economist at City fund manager Henderson, said in an absolute sense the UK’s finances “are pretty bad”.

However he added: “The Budget hasn’t done anything to allay concerns about the state of the financial accounts but when you look around the world there are a lot of countries with similar difficulties, so I don’t agree with Gross in the way that he’s singling out the UK as a special case.”