In the UK, government debt is at its highest level of more than 60 years at around 100pc of GDP, according to the Office for Budget Responsibility.
Despite all chancellors since 2010 committing to bringing debt levels down, they have only fallen in three of the past 12 years.
Mr Carvalho said that the pandemic had created demand for higher health spending “on top of the long-term needs to invest in climate-related activities”.
BNP Paribas’ chief European economist Paul Hollingsworth added demographics was among “very big structural forces that present serious challenges to the public finances in the medium term.”
The OBR has estimated that the ratio of working age people to retirees in the UK will fall from four-to-one to three-to-one over the next 50 years despite higher immigration.
Mr Hollingsworth said: “I think what we’ll be left with is a structurally higher level of spending than in the past, but against the backdrop of higher debt servicing costs than we’ve had previously.
“It means that there’ll have to be more prioritisation from governments. They won’t be able to spend on everything and will have to cut back on some areas.”
Interest rates have risen at the fastest pace in decades across advanced economies, with the UK’s borrowing costs at a 15-year-high.
Mr Hollingsworth said that the British economy would grow at a slower pace than in the past two years, when the catch-up effect from Covid triggered growth rates of 8.7pc in 2021 and 4.1pc in 2022.
Mr Hollingsworth said: “I think the fundamental principles that have been established post-pandemic is prioritising investment spending, given the challenges that we have in terms of steering towards Net Zero and improving digitalisation.
“These are very much the kind of core components of many advanced economies in terms of where the money is going to be spent.”
