UK national debt grew this month to its highest level as a share of the economy since 1961, according to figures released on Friday, adding to the financial issues that the new administration will face when it takes office following a general election in two weeks.
The UK national debt, excluding state-controlled banks, hit 2.742 trillion pounds ($3.47 trillion), or 99.8% of annual GDP, in May, up from 96.1% the previous year, according to the Office for National Statistics.
The increase came despite somewhat lower-than-expected government borrowing in May, which was 15.0 billion pounds, compared to experts’ median projection of 15.7 billion pounds in a Reuters survey.
Following an election on July 4, Britain appears to be on the verge of a change of government, with Keir Starmer’s Labour Party leading Prime Minister Rishi Sunak’s Conservatives in surveys.
During the COVID-19 epidemic, state debt in Britain skyrocketed, and the public finances have been hampered by poor growth and a 16-year high in Bank of England interest rates.
Western Nations Debt
Most other Western countries had significant rises in debt during the same period, although British debt levels are lower than those of the United States, France, and Italy.
A person enters the Treasury government building in London, Britain, on March 5, 2024. REUTERS/Toby Melville/File Purchase Licensing Rights opens a new tab.
Borrowing in the UK totaled 33.5 billion pounds in the first two months of the fiscal year, 0.4 billion more than the same period in 2023 but 1.5 billion pounds less than government budget estimates expected in March.
Capital Economics consultants warned that the lower-than-expected borrowing figures represented less public investment and would provide little comfort to Britain’s future finance minister.
“They do little to reduce the scale of the fiscal challenge that awaits them, in part because of the upward pressure on the debt interest bill from higher interest rates,” said Alex Kerr, an assistant economist at Capital Economics.
Labour and the Conservatives want to keep to existing budget rules that require official estimates – most recently updated in March – to indicate that debt as a proportion of GDP is dropping in the fifth year of the forecast.
Higher interest rates than projected in March’s budget left Britain’s next chancellor with only 8.5 billion pounds of freedom to meet these standards, down from the historically low 8.9 billion in March, Kerr noted.
Both Labour and the Conservatives have committed not to raise income tax, value-added tax, or other major levies, but government budget predictions in March revealed that tax as a percentage of GDP was on track to hit its highest level since 1948.
Source: Reuters
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