Inflation Pushes Public Debt Interest to New November Record
Inflation Pushes Public Debt Interest to New November Record

By Lily Zhou

The UK has spent £7.7 billion on servicing central government debt in November, the highest for the month on record, according to official data published on Thursday.

The Office for National Statistics (ONS) showed that £3 billion of the bill was for additional interest on index-linked gilts that was largely driven by the 0.5 percent increase in Retail Prices Index (RPI) inflation between August and September.

The cost of debt servicing has ballooned since 2021 with soaring inflation and climbing base interest rates, hitting a record £20 billion in June 2022. The latest figure is the 16th highest in all months and the highest November figure since monthly records began in 1997.

Meanwhile, the total amount of public debt remains at the highest level since the early 1960s after £14.3 billion was added to the pile in November.

Total public sector receipts in November were over £85.6 billion, the highest November on record, but total public sector spending also hit a new November record, reaching almost £100 billion.

The monthly borrowing, £14.3 billion, was £900 million less than in November 2022 and the fourth highest November on record, the ONS said.

It’s £1.8 billion higher than the Office for Budget Responsibility’s (OBR’s) November forecast, which was also published on Thursday.

Borrowing in the current financial year hit £116.4 billion by November, £24.4 billion more than in the same eight-month period last year, and the second highest financial year-to-November borrowing on record, the ONS said.

It’s £6.3 billion over the OBR forecast.

The OBR said the discrepancy is “largely explained by lower central government receipts,” and “mainly reflects time lags in the outturn statistics which we expect to close in coming months.”

The watchdog said it expects that borrowing will rise slower than last year in the next four months.

At the end of November, public sector net worth excluding public sector banks was in deficit by £714.6 billion, compared to a £561.0 billion deficit at the same time last year.

It brings the total amount of public sector net debt excluding public sector banks to £2.67 trillion.

It’s estimated to be 97.5 percent of the UK’s GDP, 1.8 percentage points higher than in November 2022 and the highest level in 60 years.

ONS monthly data on interest payable on central government debt. (The Epoch Times)

Reacting to ONS figures before the OBR published its November forecast, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the fall in the RPI in October and November has “improved the near-term trajectory for debt interest payments, though this windfall might be offset by emerging sluggishness in tax receipts, linked to weaker CPI inflation and wage growth than the OBR had anticipated.”

Mr. Tombs believes Chancellor Jeremy Hunt could have a headroom of between £13 billion to £25 billion to spend in spring, but he “will be relatively restrained with pre-election bribes” following the “unfavourable market reaction to the national insurance tax cut.”

He predicted a net giveaway of about £10 billion to £15 billion in the next budget, followed by a bank rate reduction by the Bank of England (BoE).

The UK’s public net debt as a share of GDP. (The Epoch Times)

The public finances data came after the Consumer Prices Index inflation rate dropped faster than expected, to 3.9 percent in November.

Story continues below advertisement

It’s still almost double the BoE’s 2 percent target but well under the peak of 11.1 percent seen in October last year, prompting expectations of earlier rate cuts.

However, economist Philip Pilkington cautioned against an optimistic outlook, writing on X, formerly known as Twitter, that a potential supply shock generated in the Red Sea would bring “an inflationary recession,” meaning “relatively high interest rates on debt and a sharp uptick in borrowing due to fallen tax receipts etc.”

USNN World News (USNN) USNN World News Corporation is a media company consisting of a series of sites specializing in the collection, publication and distribution of public opinion information, local,...