A spike in debt costs – pushed by inflation soaring to twice its previous monthly peak – added to Britain’s budget deficit in June, which was its highest since April 2021, data showed on Thursday.
The Office for National Statistics said net borrowing by the public sector excluding public banks rose to 22.879 billion pounds ($27.4 billion) last month from 12.560 billion pounds in May.
A Reuters poll of economists had pointed to a deficit of 23 billion pounds.
Figures show Britain racked up interest on debt of £19.4billion in June alone, more than double the previous record.
Chart: GRAPHIC-UK racks up record interest debt bill in June-https://fingfx.thomsonreuters.com/gfx/polling/movanadxrpa/Pasted%20image%201658385594487.png
The ONS said the jump in debt costs reflected a sharp rise in April in the Retail Inflation Price Index, which is the benchmark for index-linked government bonds.
The uplift applied in June to these linkers – which represent around a third of the stock of British government bonds – was 16.7 billion terminals.
In the first three months of the 2022/23 financial year from April, Britain borrowed £55.4bn.
Although this is £5.7billion less than the same time last year, it represents an overrun of around £3.6billion on the forecast made in March by the UK watchdog. ‘Office for Budget Responsibility.
The OBR warned that with inflation set to peak even higher than previously thought, further hikes in debt-related spending were to be expected.
“With several external forecasters now predicting that the CPI measure of inflation could hit 12% in October – more than 3 percentage points higher than the peak in our March forecast – further significant upside surprises in interest expense on debt can be expected throughout the year,” the OBR said.
Ruth Gregory, senior UK economist at Capital Economics, a consultancy, said the deficit overshoot of the OBR’s forecast “could limit the next prime minister’s ability to deliver more household aid”.
The balance between tax and spending has been hotly debated between the two remaining candidates in the race to replace Boris Johnson as prime minister.
Foreign Secretary Liz Truss has pledged immediate tax cuts, which the other candidate, former finance minister Rishi Sunak, said risks fueling inflation.
In response to the data, Finance Minister Nadhim Zahawi said he recognized there were risks to public finances, including high inflation which hit a 40-year high last month.
($1 = 0.8338 pounds)
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