The chancellor will allay concerns that the scale of public borrowing and lending will lead to a sharp rise in the government’s interest rate bill in 2021-22 and beyond
- Consumer price inflation rose to 2.5 percent in June, prompting the Bank of England to worry that monetary policy may need to be tightened
- In recent days, two members of the Monetary Policy Committee have indicated that the time for a withdrawal of monetary stimulus is drawing near.
- Such a move would likely raise market rates and the cost of repayment of UK government debt
- The national debt is 99.2 percent of the country’s output – the highest ever in peacetime
Rishi Sunak is gearing up for a tough public spending round and financial statements this autumn, amid concerns that the scale-up of public borrowing and debt will lead to a sharp rise in the government’s interest rate bill in 2021-22 and beyond.
Consumer price inflation rose to 2.5 percent in June, prompting concerns in the Bank of England that monetary policy may need to be tightened as early as August 5 when the interest rate-setting Monetary Policy Committee (MPC) will hold its next meetings. organizes.
In recent days two members of the MPC – Deputy Governor Dave Ramsden and external member Michael Saunders – have signaled that the time is fast approaching to roll back the monetary stimulus.
Under pressure: Fears about the approach to borrowing and pressure from manufacturing to spend more have prompted Chancellor Rishi Sunak to hatch
Such a move would likely increase market rates and the cost of repayment of the UK government’s debt. Official public lending data shows the first two months of this fiscal year were an undershoot of £18.3 billion over the forecast made by the Budget Responsibility Office in March.
Less than projected borrowing stems from a £25 billion drop in government spending last year and higher than expected corporation and VAT tax receipts as the economy regains its momentum.
The national debt accounts for 99.2 percent of the country’s output – the highest ever in peacetime. As inflation rises and market interest rates rise, government officials worry that the cost of paying off debt will erode improvements in public finance.
Fears about the borrowing approach and pressure to spend more on everything from social care to education have led the fads to shut down hatches. Defending a £4 billion cut in the foreign aid budget last week, the chancellor said: ‘We have to see clearly … Covid has seriously damaged our public finances.’
The Treasury has calculated that a 1 per cent increase in the retail price index due to the large amount of gilt edge stocks linked to inflation would raise the loan interest rate bill by £6.9 billion, while a one per cent increase in interest rates could be ratcheted up by 2022 Government spending on debt interest increased by £17.9 billion in -23.