THE UK faces a currency and bond crisis by 2016 if government expenditure is not drastically cut, according to new findings by the Centre for Economics and Business Research (CEBR).
The current level of public spending will fuel a slight acceleration in economic growth of around 0.25 per cent for the next five years but will squeeze out private investment in the medium term.
Douglas McWilliams, chief executive officer of CEBR, told City A.M.: “The government hasn’t got any serious plans for decreasing public spending.
“If expenditure isn’t cut, in the coming years there will be a currency crisis and possibly a bond crisis too. Private investment will be squeezed out and this is going to severely hamper the economy by around 2016.
“In the short term there will be an increase in jobs and a slight increase in economic growth but this will be outweighed by the eventual fall in investment.
“When the government increased spending they threw too much money in too quickly. Now they need to immediately start phasing a cut in public expenditure. Over the next 4-5 years there needs to be a sharp reduction.
“We estimate there needs to be an initial cut of around £20bn a year, mounting to within the region of £180bn being cut by 2016.
“They could start by cutting pay and cutting pensions. They can achieve plenty of reductions without touching services. But there are also a lot of services that do not warrant the current level of expenditure.”
Britain’s record budget deficit stands at more than 12 per cent of GDP, the worst in the Group of 20 nations.