UK set to fall furthest into debt

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The fiscal deficit is expected to rise to 14% of economic output in 2010, compared to an average of 8.75% in the 30 most developed markets, according to a report by the Organisation for Economic Co-operation and Development (OECD).

The OECD warned that "public finances have deteriorated sharply" since the beginning of the recession and called on the UK to continue to develop "a strong and credible" framework for reducing the ratio of debt to output.

"To improve stability, the government should continue to develop a concrete and comprehensive plan to ensure that debt is on a declining path once recovery takes hold," the OECD said.

The OECD said the state of the UK's balance sheet meant the possibility of extra stimulus to the economy was curtailed.

The report said Ireland, the US and Spain are all expected to have fiscal deficits above the average figure next year.

It also said the UK economy was likely to recover "only mildly" in 2010, with any return to health dependent on an upturn in the housing market and credit availability. The report said the downturn in economic activity had pushed up unemployment and reduced wage growth inflation.

It predicted that UK unemployment, which currently stands at a 12-year high of more than 2.2 million, will "rise substantially" and "labour market conditions will remain unfavourable for a long period".

The OECD said the rate of unemployment is expected to grow to 9.7% in 2010, double that seen just five years before, although this is still lower than other countries. Spain is set to see the worst level of unemployment, at 19.6%, while the US level is predicted to rise to 10.1%.

Meanwhile, part-nationalised Royal Bank of Scotland lost more money than any other bank in the world last year, a leading industry journal has said. RBS's overall losses of £36 billion during a disastrous 2008 put it at the top of a list compiled by The Banker magazine, ahead of ailing US giant Citigroup.