London: UK government debt passed 2 trillion pounds ($2.6 trillion) for the first time, a milestone that will stoke the debate over how Chancellor of the Exchequer Rishi Sunak should finance his unprecedented support for the pandemic-ravaged economy.
It means what Britain now owes exceeds 100 per cent of economic output, the heaviest burden since the early 1960s, the Office for National Statistics said. The data will add to the pressure on Sunak to say how long he is prepared to allow borrowing to accumulate unchecked.
Few are calling for immediate action. Debt-servicing costs are at record lows and economists have warned that withdrawing fiscal support prematurely could derail the nascent recovery from the deepest slump in living memory.
The figures reflect the loss of tax revenue after the lockdown imposed in March plunged the economy into a record recession, as well as the vast cost of government spending programmes deployed to keep businesses and jobs afloat amid the pandemic.
In July, the budget deficit totaled 26.7 billion pounds, taking borrowing in the first four months of the fiscal year to 150.5 billion pounds. That's close to the shortfall of 158.3 billion pounds recorded in the year following the global financial crisis.
While Sunak has ruled out a return to the austerity that his predecessor George Osborne pursued in the aftermath of the crash, he has acknowledged that government finances will need to be restored to health in the medium term. "Today's figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions," he said.
Yields have fallen close to record lows after the Bank of England slashed interest rates and injected billions of pounds into the financial system. Economists expect the central bank to loosen policy further later this year to support the fragile recovery.
More borrowing is on the way for now. The Debt Management Office plans to raise an additional 110 billion pounds between September and November, bringing total sale plans from the start of the fiscal year to 385 billion pounds.
Britain is facing a deficit of over 16 per cent of GDP in the current fiscal year, the highest in peacetime history.
Budget deficits are escalating across developed nations and the U.K. is far from the most indebted, with Italy, France and the US all forecast to have bigger debt-to-GDP ratios this year.