Europe Economy

UK's Debt Situation is 'Dramatically Overblown'

Constance Faivre D'Arcier, |Special to

Don't lump the UK in with countries like Greece and Iceland, at least where debt is concerned, Vanessa Rossi, senior research fellow at Chatham House, told CNBC Monday.

The UK’s debt situation is "dramatically overblown," Rossi said.

UK Prime Minister to Set Out Election Plans

The UK’s "total debt stock is no different than our European partners. We went into the recession with a lower debt stock so, although we had a higher deficit last year, we’re about even-Steven at the moment," Rossi added.

- Watch the full interview with Vanessa Rossi above.

British Prime Minister Gordon Brown is expected to set out his strategy plan to win the next general election to members of the ruling Labour party later Monday. His address will focus on the thorny issue of reducing the country’s deficit. His plan, although still vague, aims to halve it in four years, starting in 2011. And with recent polls showing Labour trailing the Conservatives by over 10 points, the issue is pressing.

In addition, market commentators are starting to mention the eventuality of a ratings downgrade for the country if quantitative easing ends and the Bank of England doesn’t buy Gilts.

"Rating agencies will hold off (making an assessment on the UK rating) because we’ll need to see more information coming through," at least in the next six months, from the general elections and the highly uncertain economic climate, Rossi said.

"I certainly hope so as it would be unfair on the UK if something like that would happen, compared with the situation we can see in other countries," she added.

"Looking back at the early 1990s recession, the UK has got a very cyclical tax take," she noted. "So there is hope the cyclicality in tax could give (the UK) a little easier ride than it is made out."