M&G's Leaviss: UK faces its own fiscal cliff within five years

Leaviss also warned that debt to GDP above the 90% ratio could do permanent damage to the UK's growth prospects.

'The UK's debt is now in line with France and a long way away from the old 60% limit agreed at the Maastricht treaty. It is [even further] from the 40% people used to think was the trigger for AAA status.

The fund remains underweight duration because Leaviss sees little value in German and UK ten year government bonds on around 2% yields and he has been increasing his index-linked exposure on the likelihood of further QE in the UK.

'The governments will use inflation as a tool to get their deficits down. Index linked gilts are likely to outperform in this environment and with UK RPI inflation target at 3%,  five year linkers in particular look very cheap at present.'

Ultimately, Leaviss expects virtually every developed world country to lose its AAA credit status.

'The UK is not triple AAA quality and has not been for some time but over the next decade all developed world credit ratings are likely to fall slowly down. Our debt to GDP ratio is well ahead of what we should have as a developed world economy but maybe just one or two countries will be left with AAA-ratings after this sovereign debt crisis - possibly just Australia and Canada.'

He also expects more QE to occur on the view that without it, the Bank of England would be in a serious predicament in terms of a lack of buyers for its gilts.

'Some 30% of the gilt market is owned by foreigners.  If we are not doing any more QE, who is going to be buying the gilts at a time when the country's huge debt needs servicing? We could end up with a crisis of issuance [so] we  think the BoE will have to end up doing more QE.'