Rocketing interest rates and inflation drove UK government debt above 100 per cent of GDP for the first time since 1961, dealing a blow to Prime Minister Rishi Sunak’s pledge to get it falling and denting hopes for tax cuts in the build up to an expected general election next year.
The bleak milestone was passed as spending exceeded revenue by 20 billion pounds ($25.5 billion) in May, more than private-sector economists and the independent Office for Budget Responsibility had forecast.
It left the budget deficit in the first two months of the fiscal year at 42.9 billion pounds, 2.1 billion pounds more than the OBR projected and almost double the same point last year.
The figures make it hard for Sunak to deliver the big tax cuts many Conservatives say are needed if the party is to avoid a defeat at the next general election. Opinion polls show the Tories consistently trailing the opposition Labour Party by double digits.
The data from the Office for National Statistics showed the overshoot was driven almost exclusively by factors related to the inflation crisis, which has prompted the Bank of England to raise rates from 0.1 per cent to 4.5 per cent since the end of 2021.
Support for household energy bills in May cost 3.6 billion pounds, and inflation-indexing of benefits added 2.9 billion pounds to welfare spending.
Striking public-sector workers secured bigger pay deals than planned, with wage costs for May 3.4 billion pounds higher than last year, largely due to the National Health Service settlement.
Debt-servicing costs, which have driven up spending as galloping inflation pushed up payments on bonds tied to the Retail Prices Index, were slightly lower than a year earlier at 7.7 billion pounds. That was still 700 million pounds more than the OBR forecast at the time of the March budget.
Spending overall was higher than forecast for May and, in a worrying sign for the growth outlook, receipts were slightly below expectations.
