Interest payments on UK government debt have increased by almost 40% year-on-year as government borrowing has increased at a much faster pace than expected, according to official data.
The latest figures from the Office for National Statistics (ONS) show that UK government borrowing reached £4.9bn ($5.8bn) in July, well above the £2.8bn projected by economists and underperforming the fiscal year so far. The total deficit is £55 billion ($65 billion).
Higher retail price index (RPI) inflation pushed interest payments on government debt to £5.8bn ($6.9bn) in July from £3.5bn in the same month last year.
Earlier this week, the ONS revealed that the RPI rose to 12.3%, while broader consumer price index (CPI) inflation hit a 40-year high of 10.1%.
Borrowings in July were £0.8bn below 2021 levels for the same month, but represent a £5.9bn surge from 2019 pre-pandemic levels.
Compared to July 2021, Central Government current spending increased by £3.4bn to £76.5bn, debt interest increased by £2.3bn and net social benefit payments increased by £2.8bn. , partly offset by a £1.5 billion reduction. subsidy payment.
Public sector net debt, excluding public sector banks, was £2,388.1bn at end-July 2022, around 95.5% of Gross Domestic Product (GDP), down £188.4bn compared to July 2021 Or an increase of 1.4 percentage points in GDP.
The Office for Budget Responsibility (OBR) said the budget deficit was down year-on-year but was still £3bn above its projected profile in March, largely reflecting higher spending.
“The sharp rise in inflation continues to push the debt interest burden higher than our projections had envisioned,” he said.
Commenting on the latest figures, Prime Minister Nadim Zahawi said:
“We are taking a balanced approach: providing significant support to households while protecting finances,” he added.
Michal Stelmach, senior economist at KPMG UK, said the latest figures meant a “difficult choice” for the incoming Conservative prime minister after the leadership election.
“The balance of risks to finances has clearly shifted to the downside,” he said.
“The cost of living crisis is likely to require more support for households, and an economic slowdown will put downward pressure on incomes, making it more difficult than ever to reach fiscal targets.”
PA Media contributed to this report.