UK to rack up highest debt interest payments of G7 for the first time in history

Jeremy Hunt discusses tackling problems with inflation

The Treasury is on course to spend £110billion on debt interest in 2023, according to a new forecast by New York-based ratings agency Fitch.

This is expected to equal 10.4 percent of revenue for the year – the highest share of any high-income country, putting the UK on top of the table for the first time since comparable records began in 1995.

While inflation has eased considerably abroad, it remains persistently high at home. Almost a quarter of the country’s borrowing comes from so-called index-linked bonds, the payments for which fluctuate in line with the Retail Price Index (RPI). 

In a blow to Chancellor Jeremy Hunt’s dream of tax cuts before next year’s general election, Government debt surpassed the size of the economy in May for the first time since 1961, aside from a brief spike during the pandemic.

Public sector net debt continued to grow in June, hitting £2.6trillion – 100.8 percent of the country’s gross domestic product (GDP).

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With the RPI still above ten percent, the UK’s debt-interest ratio has increased dramatically over the past year, up from an average of 6.2 percent between 2017 and 2021, the Financial Times reports.

Ed Parker, global head of research for sovereigns and supranationals at Fitch, said: “We’ve had a very large inflation shock which is adversely affecting the public finances and that is obviously a key driver of the sovereign credit rating.”

Back in October, the ratings agency – one of the “big three” alongside Moody’s and Standard & Poor’s – downgraded the credit rating for British Government debt from “stable” to “negative” in the wake of then-Prime Minister Liz Truss’s disastrous mini-budget.

In June Fitch reiterated this gloomy outlook, citing “the UK’s rising government debt and uncertain prospects for fiscal consolidation”.

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The Government added £18.5billion to its debt pile in June, £1.5billion less than in May and £400 below the same month last year, according to the Office for National Statistics (ONS).

Reacting to the monthly figures, the Chancellor said: “Now more than ever we need to maintain discipline with the public finances.” 

He hailed the fall in the Consumer Price Index (CPI) from 8.7 percent in April and May to 7.9 percent annually in June as a sign that the economy was recovering after a difficult period of rising prices and falling disposable incomes.

Mr Hunt added: “As this week’s fall in inflation showed, we will start to see results if we stick to our plan to halve inflation, grow the economy and get debt falling.”

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