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Box A: Public Financing and Investment

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  • Francisco Sebastian

Abstract

In Sebastian (2024) we discussed the implications of the decline in UK pension savings. We explained how weak domestic investment demand exerts funding pressures on the UK government and corporate sectors, and can cause macro instability, visible through increased volatility in sterling and interest rates. In this box we discuss the supply of public debt. Firstly, we review the public finance and monetary environments and evaluate the associated risks. Then, we connect public finance to the supply and demand for UK investments, focusing on the risks associated with financing operating expenditure with debt. We conclude that this further weakens the already fragile position of the public finances, undermines the credibility of the UK government as a borrower and has a negative effect on private non-financial investment. Finally, we suggest policy changes that can help strengthen macroeconomic stability and overcome the weaknesses highlighted in our analysis.

Suggested Citation

  • Francisco Sebastian, 2024. "Box A: Public Financing and Investment," National Institute UK Economic Outlook, National Institute of Economic and Social Research, issue 15, pages 11-17.
    • Handle: RePEc:nsr:niesra:i:15:y:2024:p:11-17
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    File URL: https://www.niesr.ac.uk/publications/public-financing-and-investment
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