The Rest Is Money 197. How Close Is The UK To A Lethal Debt Spiral?
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Aug 10, 2025 The podcast dives into the looming threat of a UK debt spiral and its implications for economic growth. It discusses a disconcerting report outlining a £51 billion fiscal black hole and a paltry growth rate of 1.25%. The conversation highlights the urgent need for innovative tax strategies and government reform. Additionally, it explores how a shift in the Treasury's focus could invigorate the economy, encouraging collaboration with successful business leaders for fresh ideas. Listeners are prompted to engage with these pressing financial issues.
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Real Interest Outpaces Growth
- NIESR shows the UK's real natural rate (
1.5%) exceeds trend growth (1.25%). - That gap means debt servicing can outpace GDP growth, risking a rising debt-to-GDP spiral.
Interest-Only Mortgage Analogy
- Steph McGovern compares the nation's finances to an interest-only mortgage where principal is untouched and interest rises.
- She warns this can turn into a debt spiral if interest compounds onto the principal.
Primary Surplus Risks Shrinking Demand
- Achieving a primary surplus likely needs sustained tax rises or spending cuts, NIESR warns.
- Robert Peston notes repeated tax hikes will remove demand and further depress growth, compounding the problem.