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UK debt exceeds 100% of GDP for first time since 1961 – ONS

21 Jun 2023 4 minute read
Chancellor Jeremy Hunt. Photo Jordan Pettitt. PA Images

The UK’s debt pile reached more than 100% of economic output for the first time since 1961 as Government borrowing more than doubled in May, according to official figures.

The Office for National Statistics (ONS) said net debt reached £2.6 trillion as of the end of May, estimated at 100.1% of gross domestic product (GDP).

It is the first time the debt-to-GDP ratio has risen above 100% since March 1961, except for during the pandemic, but this was later revised lower due to stronger GDP figures.

It came as UK Government borrowing soared year-on-year to £20 billion in May, pushed higher by the cost of energy support schemes, inflation-linked benefit payments and interest payments on debt.

Monthly UK government borrowing in May.

May’s borrowing figure was £3 billion lower than in April but £10.7 billion higher than a year ago and the second-highest May borrowing since monthly records began in 1993.

Economists had predicted borrowing of £19.5 billion for May.

Chancellor Jeremy Hunt said the Government has been taking “difficult decisions” to balance the books following the pandemic and Russian President Vladimir Putin’s invasion of Ukraine.

“We rightly spent billions to protect families and businesses from the worst impacts of the pandemic and Putin’s energy crisis,” he said.

“But it would be manifestly unfair to leave future generations with a tab they cannot repay.

“That’s why we have taken difficult but necessary decisions to balance the books in order to halve inflation this year, grow the economy and reduce debt.”

The ONS estimated that the Government spent around £1.5 billion on energy support schemes in May, including the energy price guarantee capping bills at £2,500 a year, as well as the energy bills discount scheme.

The schemes are estimated to have cost the UK £29.7 billion in the first six months alone.

The energy price guarantee was initially set to run from October to March only, but was extended until July.

It will be replaced by Ofgem’s price cap for annual energy bills on July 1, which has been set at £2,074.

NHS pay deal

The UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), said higher than expected borrowing was also driven up by the recent NHS pay deal, which added £2.7 billion to Government spending last month, as well as higher debt interest costs.

The figures revealed that the interest payable on central government debt was £7.7 billion in May, which is £200 million less than a year ago, but £700 million more than forecast by the OBR.

Britain’s debt interest bill has been rocketing over the past year, reflecting the impact of sky-high retail prices index (RPI) inflation on index-linked gilt stock.

Inflation has been falling from painful highs seen in October last year, but official figures also out on Wednesday showed consumer prices index inflation failed to ease as hoped in May, remaining at 8.7%, while RPI edged back only slightly to 11.3% from 11.4% in April.

Borrowing in the first two months of the financial year so far has already reached £42.9 billion – £19.6 billion more than in the same two-month period a year ago and £2.1 billion higher than the £40.8 billion predicted by the OBR.

But the ONS said it has revised down its estimate for borrowing in the previous financial year to March 2023 by £3 billion to £134.1 billion.

This is still £11.8 billion more than in 2021-22 and remains the fourth highest borrowing figure since monthly records began.

Interest rates

Martin Beck, chief economic adviser to the EY Item Club, predicts that borrowing could overshoot the OBR’s forecast for 2023-24 by as much as £20 billion due largely to the recent marked increase in expectations for interest rates, which push up the cost of Government borrowing.

“At the next fiscal event in the autumn, the official forecaster will likely deem the Government in breach of its fiscal rules based on current policy,” he said.

“The Chancellor would likely respond by adding more post-election spending cuts on top of a spending squeeze that already looks challenging.

“So the true medium-term path for fiscal policy is unlikely to emerge until the first Budget after the election.”

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Mab Meirion
Mab Meirion
11 months ago

Hunt not wearing his smug face this morning in parliament, perhaps he is a little bit afraid of his moment in the spotlight this afternoon…

11 months ago

Funny how MPs are all financially well off but the UK is in serious debt. I did read that £400bn went into the pockets of friends, relations and business aquaintancies of the government during covid.

11 months ago

But it’s Wales that can’t afford to be independent.

Steve A Duggan
Steve A Duggan
11 months ago

The party of fiscal responsiblity – yeah right! Extreme right wing ideology, in the forms of Brexit and Truss, have much to do with the dire state of the economy. ‘Britannia Unchained’ crap has actually made us less productive, poorer and actually chained to decline – who’d have believed it eh ?…..

11 months ago

Debt, dear me, suggests that Austerity Mk 2 ( or 3) will get unleashed to “balance” things up. Except none of these s.o.b’s ever come clean about Government waste which has been eye watering since 2020 and didn’t show much evidence of control prior to that. Add up the dud contracts awarded to cronies, the pathetic failures to specify products and services clearly, the pet vanity projects, absence of cost controls, the failures to monitor adherence to delivery schedules …. I’m sure you can all muster a few more items for this shocking list of defects and delinquency. Yet the… Read more »

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