Source: AFP
UK government debt is as large as the country’s gross domestic product for the first time since the 1960s, data showed on Friday, as the new government warned of tough fiscal decisions ahead of its maiden budget.
Public sector net debt “was provisionally estimated at 100 percent of gross domestic product at the end of August,” the Office for National Statistics said in a statement.
Prime Minister Keir Starmer, whose Labor party was elected in early July, has warned Britons that the budget announcement on October 30 will be “painful”, with tax increases and spending cuts expected.
That warning was echoed by Finance Minister Rachel Reeves, who will deliver the country’s fiscal plans to parliament.
The government is already facing criticism from all sides for scrapping a winter fuel scheme for 10 million pensioners.
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Starmer has repeatedly defended the move as a necessary “tough choice” to help plug a 22 billion pound ($29 billion) “black hole” in public finances that Labor claimed was left behind by the previous Conservative government.
“Difficult Decisions”
Friday’s data also showed “the highest August borrowing on record, outside of the (Covid) pandemic,” Darren Jones, a senior UK Treasury official, said in a statement.
“Debt is 100 per cent of GDP, the highest level since the 1960s. With the £22bn black hole in our public finances inherited this year alone, we are now taking the tough decisions to fix the foundations of our economy. ” he added.
The debt to GDP ratio was at 99.3% in July.
Net borrowing in August reached 13.7 billion pounds on increased spending on public services, the ONS noted.
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This is set to continue after the government agreed this week to increase the pay of doctors and train drivers.
Looking much further ahead, a government watchdog last week predicted that the UK’s national debt could almost triple over the next 50 years due to an aging population and climate change.
The forecast came from the Office for Budget Responsibility, which the government relies on for UK growth and inflation forecasts.
Consumer weakness
Adding to the challenge, a closely watched index on Friday revealed a big drop in UK consumer confidence.
Data analysts at GfK said its consumer confidence index “fell sharply” to minus 20 points in September.
“This is not encouraging news for the new UK government” despite firm UK inflation and the prospect of more rate cuts from the Bank of England, said GfK Consumer Insights director Neil Bellamy.
“Strong consumer confidence matters because it underpins economic growth and is an important driver of shoppers’ willingness to spend.
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“Following the withdrawal of winter fuel payments and clear warnings of further tough decisions on tax, spending and welfare, consumers are nervously awaiting budget decisions,” he added.
The Bank of England (BoE) kept its key interest rate at 5.0% on Thursday, deciding against further cuts a day after the US Federal Reserve’s jubilee cut.
After a regular meeting, BoE governor Andrew Bailey said the central bank must “be careful not to cut too quickly or too much” as UK inflation remains above its target.
The ONS added on Friday that British retail sales rose by one per cent last month as summer sales and warm weather helped boost clothing stores and supermarkets.
It followed data this week showing annual UK inflation was unchanged at 2.2% in August from July — above the BoE’s two percent interest rate target.
However, further rate cuts could give Britain’s economy a much-needed boost as retail banks tend to pass on the cuts to borrowers, boosting consumer disposable income.
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Official data last week showed UK economic output stalled in July, dealing a blow to the new government which has put growth at the top of its priority list.
Source: AFP
