Bank of England official: UK economy could collapse like Venezuela if it continues to rack up debt

Posted On: 
1st December 2017

The UK must control its borrowing to avoid a Venezuela-style financial meltdown, a Bank of England official has warned. 

Philip Hammond delivered his Autumn Budget last week
Credit: 
PA

Richard Sharp, a member of the Bank’s Financial Stability Committee, said the fiscal framework could be “jeopardised” unless Philip Hammond keeps a tight grip on the public finances.

It comes after weeks of pressure on the Chancellor to spend more in the run up to his Autumn Budget.

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In the end he added some £25bn on new measures to public spending - but he was restrained from going further by downgraded growth forecasts.

Despite the Chancellor's caution, Mr Sharp warned that UK debt was still a danger and that wealthy countries could lose their good credit ratings, citing the example of Venezuela.

At a speech at University College London, he noted the Government had already borrowed an extra £1 trillion since the 2008 financial crisis.

“A highly indebted government has less capacity to react to crises,” he said.

“We cannot assume that further shocks do not materialise, and evidence demonstrates that fiscal space is a vital national resource to have available to counteract such a shock.

“Reducing fiscal space, therefore, means financial stability is harder to achieve.”