And borrowing costs are high, particularly when compared to growth, while elevated inflation makes it harder for the Bank of England to reduce rates.
“The combination of those factors suggests there is a challenging fiscal outlook, and significant consolidation steps will be needed to make sure that the debt outlook remains sustainable,” says Jari Stehn, Goldman Sachs Research’s chief European economist.
But there are factors playing in the UK’s favor, including strong fiscal institutions, a track record of successful fiscal consolidation, and monetary sovereignty.
We spoke to Stehn about why UK debt and deficits are so high, how markets are responding, and what it would take to stabilize the fiscal situation.
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