UK borrowing falls as debt pile revised to under 100 per cent of economy
The Government’s debt pile was bigger than the country’s economic output in June – the first time this has happened for more than 60 years, official data shows.
Public sector net borrowing hit £18.5 billion last month, down from £20 billion a month earlier, the Office for National Statistics (ONS) said. It pushed the total debt pile to a little under £2.6 trillion.
It was lower than the £22 billion experts had forecast, according to a consensus figure supplied by Pantheon Macroeconomics.
Yet this is still the third most that the Government has borrowed in any June since 1993.
The ONS said debt reached 100.8% of GDP in June, the first time that had happened since 1961.
The data earlier suggested that milestone was passed in May.
It is not the first time in recent years the UK was thought to have passed the 100% milestone only for the data to be revised later.
During the pandemic the ONS thought the measure had briefly risen above 100%, but it later revised these estimates as GDP was stronger than expected.
The interest the Government paid on its debt in June was £12.5 billion, which is still the third-highest of any month on record, despite being significantly less than the £20 billion payments in June last year.
“Domestic vulnerabilities drive a decoupling of UK fiscal position from its peers,” said Michal Stelmach, senior economist at KPMG UK.
“Public sector net borrowing was £18.5 billion in June and £54.4 billion in the first three months of the fiscal year, an increase of 29% on the corresponding period a year earlier.
“This was largely driven by non-interest spending such as energy support schemes and benefit payments, which include the latest disability cost-of-living payment estimated to have cost around £740 million in June.”
“Heading into the next general election, the Government will be wary that despite the successive fiscal rules, public sector debt has tripled over the past 20 years.
“While this is not unique to the UK, domestic vulnerabilities … leave the current fiscal position more sensitive to shocks compared to its peers.”
Britain’s public finances have become much more imbalanced due to a series of shocks hitting its economy over the last 15 years.
Banking crises in 2008, Brexit, the pandemic and Russia’s invasion of Ukraine have all raised public borrowing and squeezed growth.
Before the financial crisis, debt as a share of GDP was a little over 35 per cent.
Economists have warned that the Bank of England’s efforts to tame inflation by raising interest rates could balloon the UK’s debt servicing bill over the coming years.
Deutsche Bank analysts said in a note to clients last month the amount of money the government has to pay investors in UK debt is on course to top £100bn every year over the next half a decade.
A large chunk of the UK’s debt pile is also tied to an old measure of inflation known as the retail price index, which has taken off over the last two years, raising the debt servicing bill. Consumer price inflation fell to 7.9 per cent in June, a faster than projected fall.
Office for Budget Responsibility officials earlier this month calculated the increase in bond rates since March has pushed the annual debt servicing up £13.7bn in five years’ time.
Tax cuts as a result seem highly unlikely any time soon unless Hunt tweaks his fiscal rules of getting the debt stock falling and capping annual borrowing at three per cent of GDP in five years.
Press Association – August Graham