Avoid UK debt warns PIMCO's Gross

Date: Tuesday 26 Jan 2010

The manager of the world's biggest bond mutual fund has told investors to steer clear of UK debt as record levels of borrowing could damage sterling.

‘Gilts are resting on a bed of nitroglycerine,’ he wrote on the company’s website Tuesday. ‘High debt with the potential to devalue its currency present high risks for bond investors.’

Gross warned earlier this month that the likelihood Britain will lose its AAA credit rating was as much as 80%.

The UK economy only managed to crawl out of recession in the fourth quarter of last year it emerged today, with unimpressive growth of 0.1% over the previous quarter.

Government debt is expected to hit 77% of gross domestic product (GDP) in 2014, having jumped to £870bn at the end of 2009, or 61.7% of annual output.

Gross believes Germany German government bonds are ‘the safest, most liquid sovereign alternative’, but are vulnerable if the eurozone has to bail out Greece.

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