Professor Krugman said that the UK had stabilised its banking system

The UK is in the best shape out of all the economies in Europe, according to a leading economist.

Paul Krugman, who won the 2008 Nobel prize for economics, said that the UK's economic policies had been "pretty good" and called them "intelligent".

The government also deserved more credit for its policies, he said in an interview with the Observer newspaper.

His comments come at the end of a week when the pound has risen to its highest level this year.

But Professor Krugman believes the earlier fall in the value of sterling may have helped the UK.

"The UK has achieved a lot of monetary traction in the way that no one else has through the depreciation of the pound. In effect, you've carried out a successful beggar-my-neighbour devaluation," he said.

"I think the UK economy looks the best in Europe at the moment."

The government's policies had managed to stabilise the banking system, he said.

He added: "If the government can hold off having an election until next year, Labour might well be able to run as 'we're the people who brought Britain out of the slump'."