November Sees New Record High in Public Debt Interest Due to Inflation

The United Kingdom has recorded record-high spending on servicing central government debt in November, reaching £7.7 billion. According to data published by the Office for National Statistics (ONS) on Thursday, £3 billion of this bill was for additional interest on index-linked gilts, largely due to a 0.5 percent increase in Retail Prices Index (RPI) inflation between August and September.

Debt servicing costs have continued to rise, reaching £20 billion in June 2022. The latest figure is the highest ever recorded for the month of November, since monthly records began in 1997. In the meantime, public debt has reached its highest level since the early 1960s, with £14.3 billion added to the pile in November.

Although public sector receipts in November were over £85.6 billion, the highest figure for November on record, total public sector spending also hit a new November record at almost £100 billion. Borrowing in November stood at £14.3 billion, which is the fourth highest November borrowing since records began.

The Office for Budget Responsibility (OBR) forecasts the current financial year’s borrowing to be £1.8 billion higher than expected, and a total of £116.4 billion by November, the second highest amount at this point in the financial year on record, in part due to lower central government receipts.

Public sector net worth excluding public sector banks was in deficit by £714.6 billion at the end of November, with the total amount of public sector net debt excluding public sector banks reaching £2.67 trillion, equivalent to 97.5 percent of the UK’s GDP, the highest level in 60 years.

Reacting to the ONS data before the OBR published its November forecast, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that Chancellor Jeremy Hunt could have room to spend between £13-25 billion in spring. However, he predicts that the Chancellor will be relatively restrained, following an unfavorable market reaction to the national insurance tax cut.

Output from the Consumer Prices Index inflation rate has dropped to 3.9 percent in November, almost half of the peak seen last year. This has prompted expectations of an earlier rate cut from the Bank of England. However, some caution against an overly optimistic outlook, with economist Philip Pilkington warning of a potential supply shock that could lead to an “inflationary recession.”

As the UK grapples with skyrocketing public spending and inflation, it remains to be seen how policymakers will navigate the challenges to come.


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