Rachel Reeves facing 'genuine risk' of fiscal crisis as looming threat revealed

The UK is facing a "genuine risk" of fiscal crisis without immediate action, a senior economist has warned.

The country needs a "complete economic overhaul", according to the Centre for Policy Studies' (CPS) Breaking the Cycle report being released on Monday.

Its author Dr Gerard Lyons, research fellow at the CPS, said: "The issues we face are real, sizeable but are solvable with the right policies. The central aim should be to grow GDP per capita. All policy decisions should be geared to this.

"Although a repeat of 1976 is not inevitable, a fiscal crisis is a genuine risk. The current focus is on the Budget in late November, but if the Government loses the confidence of international investors a crisis is possible at any time."

The UK economy in 1976 faced a severe crisis characterised by inflation over 15%, a large balance-of-payments deficit and rising unemployment.

The report highlights that GDP per capita growth has stalled, while productivity growth has collapsed to just one-third of pre-2008 rates.

Despite spending approaching £1.5 trillion annually, public sector productivity has stagnated.

On current trends, public debt will breach 100% of GDP this decade and continue rising.

The tax burden is already on track to a hit post-war high of 37.5% of GDP and the financial markets are already signalling concern, with the UK increasingly dependent on international investors to finance its debt.

Shadow Chancellor Sir Mel Stride MP said: "This report highlights a simple truth: we are living beyond our means. Urgent action is needed to fix our public finances and restore confidence in the UK economy.

"For too long now we have lagged behind other countries in terms of growth and productivity. But the current government's answer to that has been higher spending and higher borrowing. That is unsustainable, crowds out the private sector and pushes up inflation.

"As the paper argues, what we need is a radical supply side agenda to unleash growth, coupled with responsible fiscal management."

It comes as the UK economy failed to grow in July, following the biggest contraction in manufacturing output for a year.
The Office for National Statistics (ONS) said last week that the economy saw zero growth in the month, which was in line with expectations, following a 0.4% expansion in June.

But monthly figures are volatile, and the ONS has said it will now focus on growth over a rolling three-month period.
In the three months to July, the economy expanded by 0.2%

The Government is under mounting pressure to deliver on its key priority of boosting economic growth ahead of the Budget on 26 November.