Current public sector net debt represents 98.5% of gross domestic product, the highest level in more than fifty years.
After inflation pushed borrowing costs to some of their all-time highs, the British government made one of its largest interest payments on public debt ever last month.
Despite a reduction in public sector borrowing, interest expenses skyrocketed to £7.6bn in May, much exceeding the £5.1bn forecast by the Office for Budget Responsibility (OBR).
The increase is a result of a rise in retail price inflation, which is tied to a significant portion of the government’s debt obligations.
According to the Office of National Statistics, the debt interest payments were the third-largest ever made by the British government and the highest payment made in May.
The government’s borrowing decreased to £14 billion last month compared to £18 billion a year ago, while pandemic-related limits remained in place.
However, despite being lower than the previous year, borrowing remained above pre-pandemic levels.
In response to the cost-of-living crisis, the government has been compelled to raise spending.
Current net public sector debt is 95.8 percent of gross domestic product, the highest level in more than fifty years.
In addition, due to inflation, interest rates on debt are greater this year than in 2021.
The OBR estimates that interest payments alone will cost the government £87,2 billion for the fiscal year ending in March 2023.
According to Michal Stelmach, senior economist at KPMG UK, “debt reduction this year is unlikely.
This year, we expect borrowing to exceed the OBR’s March prediction by approximately £20 billion due to increased spending and poorer economic growth.
Chancellor Rishi Sunak stated that rising inflation and rising debt interest rates constitute a challenge for public finances “just as they do for household budgets.”
Mr. Sunak continued, “By being careful with the public finances now, future generations will not be saddled with even bigger debt repayments, and we can protect our economy for the long term.”
