Interest payments on UK government debt reached one of the highest levels recorded last month as rising inflation limited the expected decline in public sector lending.
Interest expenses rose to £ 7.6 billion in May, 70% more than last year and higher than the £ 5.1 billion forecast by independent fiscal oversight, following the rapid rise in retail price inflation, which involves many debt payments.
The figures were released after a close survey of S&P Global / CIPS UK purchasing managers found business sentiment fell to a two-year low amid concerns about the impact of rising inflation on household spending and the long term. for growth.
The National Bureau of Statistics said debt interest payments were the third highest ever by the government and the highest in May.
Inflation raises government borrowing costs, as retail price index payments account for 25% of UK government debt. Official figures released on Wednesday show that RPI rose at an annual rate of 11.7% in May, the fastest rate since December 1981.
However, net public sector loans fell in May, but by less than expected, as inflation also helped public finances, leading to higher tax revenues.
Loans in May were 14 billion pounds, up 4 billion pounds from the same month last year, according to ONS data released on Thursday. But May’s loan was higher than the £ 12 billion forecast by economists polled by Reuters, and well over £ 10.3 billion expected by the Office of Budget Accountability, the security guard.
The strong labor market and economic recovery have also increased government revenues. In May, government revenue increased by £ 5.7 billion, including a £ 3.4 billion annual increase in tax revenue.
Samuel Tombs, an economist at Pantheon Macroeconomics, noted that government revenues underestimated OBR’s projections, especially for consumption tax revenues. This may suggest that the economy does not meet OBR’s expectations, he said.
Loans for April were also revised. This means that public finances for the current fiscal year “started disappointingly,” said Martin Beck, chief economic adviser at EY Item Club.
Chancellor Rishi Sunak said: “Rising inflation and rising debt interest rates pose a challenge to public finances as well as family budgets.
Higher interest payments have also been partially offset by the end of most government support schemes for Covid-19.
The net debt of the public sector or loans accumulated over time is 95.8% of gross domestic product, the highest ratio since the early 1960s.
This year’s loan figures still do not include the £ 15bn package of government measures announced last month to support households with growing energy bills.
Michal Stelmach, a senior economist at KPMG UK, said “the rate of deficit reduction will slow in the coming months” as a result of the latest government support package and weaker economic growth.
PMI indices in June raised concerns about a new economic downturn.
The intermediate composite index of PMI, a barometer of the change in private sector activity compared to the previous month, remained unchanged from the 15-month low observed in the previous month, at 53.1.
However, the forecast index of business expectations registered the largest monthly decline since the beginning of the pandemic. The new order index also fell to 50.8 in June from 53.8 in May, showing the weakest growth rate in more than a year
Chris Williamson, chief business economist at S&P Global Market Intelligence, said “business confidence has now fallen to a level that in the past has usually signaled an imminent recession.”
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