U.K. Chancellor of the Exchequer Alistair Darling contests Bill Gross’ strong recommendation against British bonds, defending the government’s debt reduction plan.
Pimco’s star bond fund manager Gross recently called gilts “a must to avoid,” and ratings agencies have warned that unless Britain gets its debt under control soon, its credit rating may be downgraded.
The U.K. Treasury predicts the budget deficit will hit a post-World War II record of 12.6 percent this year.
But Darling says his plan to cut the deficit in half is the most ambitious of any major economy.
As for Gross’ opinion on gilts, “It’s not a view shared by others,” he told Bloomberg.
“If you look at what we are doing, we have the fastest deficit reduction plan of major economies. We are going to halve the deficit in four years.”
Gross isn’t buying any of that.
Gilts “are resting on a bed of nitroglycerin,” he wrote in his monthly outlook on Pimco’s Web site.
“High debt with the potential to devalue its currency presents high risks for bond investors.”
Investment icon Jim Rogers agrees with Gross, telling Bloomberg that the U.K. is “finished.”
But Royal Bank of Scotland economists Ross Walker and David Simmonds dispute Rogers’ points in an open letter.
“Your argument that the U.K. goes to the dogs because the oil’s run out and because it has nothing to sell, while making for good sound bites, lacks rigor,” they wrote.
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