UK government interest in borrowing soars to December record as inflation soars

According to official figures, interest rates on the UK government’s borrowing soared to a record in December last month due to rising inflation.

The National Bureau of Statistics of China (ONS) said last month that interest payments on government debt tripled from £ 2.7 billion in December 2020 to a record high of £ 8.1 billion.

This is because UK inflation has competed to levels that have not been seen for 30 years as a result of rising energy and fuel prices and supply chain problems.

ONS said the surge in UK debt interest payments was due to the recent surge in the Retail Price Index (RPI) inflation index, which will determine the payment of index-linked gilts.

RPI has risen to its highest level since March 1991, reaching 7.5% last month and up from 7.1% in November.

Borrowings in December fell to £ 16.8 billion year-on-year, but interest payments increased £ 7.6 billion year-on-year, according to ONS data.

Public sector borrowing from the end of March to December was £ 146.8 billion, the second highest since the record began in 1993, but fell by £ 129.3 billion in 2020-21 at the height of the pandemic. ..

Year-to-date figures are also £ 12.9 billion less than the Office for Budget Responsibility (OBR) forecast.

According to the data, public sector debt, excluding public sector banks, was £ 2.34 trillion at the end of the month, or about 96% of gross domestic product (GDP).

Prime Minister Rishi Sunak said:

“Our financial rules mean reducing debt burden while continuing to invest in the UK’s future.”

Experts warn that interest payments on public debt will increase further as inflation in the consumer price index (CPI) is set to rise above 6% in the spring from the current 5.4%.

Rising interest rates also affect the payment of government loans. The OBR had previously warned that a 1 percent rise in interest rates would result in an additional £ 23 billion in interest payments on Britain’s huge debt heap.

Interest rates were raised to 0.25% last month and are widely expected to rise again in February as soon as the Bank of England moves to cool rampant inflation.

Samuel Tombs of Pantheon Macroeconomics said:

“Nevertheless, Mr Snack will probably intervene in the spring statement on March 23 to mitigate the’living cost crisis’set to involve households in April. “

He anticipates some action to limit the increase in Ofgem’s energy price cap, but the prime minister resists the call to postpone the increase in national insurance contributions scheduled for April this year. is.

PA media