Public investment must rise and credibility can reassure markets

UK living standards have stagnated since 2008, a consequence of weak labour productivity growth. It is becoming clear that public underinvestment has been an important contributor to this development. Concerns about debt sustainability make a significant rise in public investment difficult, but more could be borrowed to raise public investment without unnerving financial markets.

Britain has good fiscal fundamentals. At first sight, UK debt-to-GDP at 98 per cent appears to be extremely high, but this is in line with the historical average since 1699. British governments have always managed to bring debt back down again. The UK also has the longest default-free history of any big western economy.

Why is there a perception that the country is in deep fiscal trouble? The run on gilts