London Daily

Focus on the big picture.
Sunday, Oct 25, 2026

UK economy cannot be fully protected, says IFS

UK economy cannot be fully protected, says IFS

The UK economy cannot be "fully protected" as slower growth and higher borrowing leave it with record levels of debt, a think thank says.

The Institute for Fiscal Studies (IFS) said UK government borrowing this year will hit a level never seen in peacetime due to the pandemic.

It said the state had pumped an extra £200bn into the economy to support jobs, businesses and incomes this year.

It said this was necessary, but meant big tax rises are inevitable in future.



To pay for the services it provides, the UK government borrows from investors around the world and the Bank of England, then tries to balance its books through taxes.

But in an update originally meant to accompany the chancellor's now scrapped Autumn Budget, the IFS said this would become harder as the crisis rolled on.

It said the economy was forecast to be 5% smaller in 2024-25 than was projected back in March, which would leave the country with a £100bn hit to its finances from lower tax revenues.

At the same time, it said "higher borrowing will be with us for some time to come".



The government will not, as the chancellor promised just a week ago, "always balance the books" and the Conservative manifesto commitment on lower debt is impossible, says the Institute for Fiscal Studies in its annual audit of the public finances.

Annual government borrowing this year will reach levels only previously reached during world wars, while the national debt will be bigger than the economy, reaching 110% of GDP by 2025.

However, the IFS warns that now is not the time for tax rises or spending cuts. The economy will continue to need support because of one of the worst pandemic hits to growth in the world, alongside the prospect of new post-Brexit trade barriers with the EU.

For now, extra borrowing is helped by extraordinarily low rates of interest paid by the government. But the IFS outlines a scenario where even significant tax rises, worth £40bn a year from the middle of this decade, will fail to get the size of the national debt below 100% of GDP.

Repaying the Covid support spending is, the institute suggests, going to be a delayed and then very gradual programme of tax-and-spend restraint that could last a generation.

Paul Johnson, director of the IFS, said the government had no choice but to ramp up spending in the short term, and there was little it could do "fully to protect the economy into the medium run".

"We are heading for a significantly smaller economy than expected pre-Covid and probably higher spending too.

"Without action, debt - already at its highest level in more than half a century - would carry on rising. Tax rises, and big ones, look all but inevitable, though likely not until the middle years of this decade."



The UK's national debt - how much it owes investors and lenders - rose above £2 trillion for the first time in August.

The think tank said it expects debt will be just over 110% national income by 2024-25 - meaning the government would owe more than what it brings in in taxes.

This would be up from 80% before the pandemic and 35% in the years leading up to the 2007-08 financial crisis.

The IFS said the UK had benefited from historically low interest rates during the crisis, which made it cheaper to borrow.

But it warned any increase in rates could, if not accompanied by stronger growth, be "hugely problematic for the public finances".



The forecast comes as the UK economy remains under stress. In an accompanying analysis, Citibank said every major economy bar China shrank in the first half of this year, mostly by historically large margins.

Spain and the UK did the worst, with output drops of roughly 20%, more than double the hit in the US or Germany.

The bank warned that even if another round of major lockdowns can be avoided, most economies will not return to pre-pandemic levels of output until 2021 or 2022.

And even when the pandemic is over, there will be lingering effects on consumer demand due to increased caution, shifts in behaviour and rising unemployment.

Citibank forecasts the unemployment rate in the UK is likely to increase to about 8% to 8.5% - or 2.7 to 2.9 million people out of work - in the first half of 2021.

That could see unemployment at its highest level since the early 1990s.

Newsletter

Related Articles

0:00
0:00
Close
Department for Environment Food and Rural Affairs Implements Stricter Water Quality Regulations for British Rivers
Welsh Government Launches Major Renewable Energy Initiative to Expand Offshore Wind Capacity Along the Coast
Northern Ireland Executive Reaches Final Agreement on Comprehensive Regional Infrastructure Modernization Plan
Office for National Statistics Reports Moderate Increase in British Retail Sales Driven by Autumn Discounts
Scottish First Minister Announces Emergency Housing Strategy to Tackle Severe Homelessness Across Urban Centers
Automotive Industry Leaders in the United Kingdom Urge Government Support for Electric Vehicle Manufacturing Transition
United Kingdom and European Union Initiate High-Level Negotiations on Post-Brexit Defense and Security Pact
National Health Service England Introduces Sweeping Digital Reforms to Reduce Hospital Waiting Lists Nationwide
Chancellor of the Exchequer Outlines Emergency Fiscal Measures to Address Local Government Funding Crises Across England
Bank of England Governor Warns of Persistent Inflation Pressures Impacting Interest Rate Decisions in the United Kingdom
UK Conservative Party Suspends Former Electoral Candidate Following Undercover Investigation
Actors and Writers Condemn British Anti Terror Legislation Targeting Activist Groups and Free Speech
Central Bank and Treasury Monitor Inflation Risks as International Monetary Fund Upgrades United Kingdom Growth Forecast
Storm Boelo Batters British Isles With Eighty Mile Per Hour Winds Causing Widespread Power Outages
British Intelligence Services and Technology Firms Partner to Counter Artificial Intelligence Enabled Cybersecurity Threats
UK Consumer Confidence Falls at Fastest Rate Since Brexit Vote as Cost of Living Intensifies
Chancellor John Healey Prepares Landmark Autumn Budget Focused on Devolution and Fiscal Rules
Northern Ireland Executive Ministers Reach Consensus on Shared Economic Development Priorities to Stimulate Regional Growth in Belfast
Department for Business and Trade Finalizes Conditional Support Package for Advanced Semiconductor Fabrication Facilities in Newport
Welsh Government Unveils Regional Industrial Development Strategy to Attract Green Energy Investment to South Wales Manufacturing Hubs
Foreign Secretary David Lammy Concludes Diplomatic Mission to European Capital Cities to Strengthen Post-Brexit Defense Cooperation
Department for Environment, Food and Rural Affairs Implements Stricter Regulatory Compliance Standards for Water Utilities Across England
Office for National Statistics Reports Moderate Wage Growth Stabilization and Resilient Employment Figures Across the United Kingdom
Scottish Government and Trade Union Representatives Reach Tentative Pay Agreement for Public Sector Transport Workers in Edinburgh
National Health Service England Announces Emergency Capital Funding Allocation to Reduce Winter Emergency Department Bottlenecks
Bank of England Monetary Policy Committee Signals Cautious Approach to Interest Rate Reductions Amid Persistent Inflation Pressures
British Prime Minister Keir Starmer and Treasury Officials Finalize Urgent Fiscal Adjustments Ahead of Upcoming National Budget
Tour de France Organizers Confirm Historic Grand Depart Featuring Edinburgh and Yorkshire Stages
National Cyber Security Centre Issues Urgent Alerts Following Global Security Vulnerability in Core Programming Software
Independent Energy Analysts Warn Great Britain Faces Highest Winter Power Tariffs in Europe
Major British Defense Contractors Commit to Delivering Forty Thousand New Apprenticeships and Training Placements
New Bradford Railway Station Infrastructure Project Approved to Transform Regional Transit Connectivity Across Northern England
Welsh Infrastructure Stakeholders Press Government for Accelerated Local Sourcing in Military and Uniform Manufacturing
Scottish Council Governance Crisis Triggers High-Court Legal Challenge Over Leadership Ouster Bid
High Street Bakery Chain Greggs Announces Major Factory Closures and Seven Hundred Job Cuts
Automotive Manufacturer Jaguar Land Rover Advances Advanced Defense Technology Partnership with European Allies
Treasury and Bank of England Officials Signal Persistent Concern Over Inflation-Driven Interest Rate Path
International Monetary Fund Upgrades United Kingdom Growth Forecast While Issuing Inflation Warnings
National Health Service Leaders Warn of Severe Capacity Pressures as Early Winter Respiratory Infections Surge
Government Issues Emergency Resilience Guidance Advising All British Citizens to Stockpile Essential Supplies
United Kingdom Private Sector Growth Beats Expectations in October Driven by Resilient Services and Manufacturing
Barclays to Cut Five Thousand Jobs in Major Artificial Intelligence Adoption and Cost-Cutting Overhaul
Piper Tomahawk Aircraft Crash Near Drymen in Stirling Claims Two Lives as Investigators Deploy
North Sea Transition Authority Approves Jackdaw Gas Field Production After Ministerial Authorization
Government Injects One Hundred and Forty Million Pounds to Expand Urgent Care Ahead of Winter Crisis
Department of Health Warns Further Pay Rises Will Derail National Health Service Waiting List Targets
Major Environmental Emergency Declared in South Wales Following Aerospace Kerosene Spill
Tank Barrel Production Returns to Britain as Defence Contractors Accelerate Domestic Rearmament
Government Approves Controversial Jackdaw Gasfield Development in the North Sea
National Health Service Maternity Safety Review Condemned Over Flawed Artificial Intelligence Integration
×