UK debt exceeds 100% of GDP for first time since 1961 – ONS
Official statistics have reported that Government borrowing has more than doubled in May, causing the UK's debt pile to exceed 100% of economic output for the first time since 1961.
According to the Office for National Statistics (ONS), the amount of money the UK owes (net debt) had increased to £2.6 trillion by the end of May, which is around 100.1% of the overall value of the country's goods and services (Gross Domestic Product or GDP).
For the very first time since March 1961, the proportion of debt to GDP has exceeded 100%, save for the pandemic period, but this was later rectified owing to more robust statistics for GDP.
The Government's borrowing has increased to £20 billion in May compared to the previous year. This rise was mainly due to the expenses incurred on energy support schemes, payments linked to inflation, and the interest charged on debts.
In May, the amount of money borrowed by the government was £3 billion less than what was borrowed in April. However, compared to last year, the borrowing figure for May was £10.7 billion higher. This marks the second-highest amount borrowed for the month of May since official records started being kept in 1993.
Experts in economics had made an estimation for the amount of borrowing in May to be approximately £19.5 billion.
The Chancellor, Jeremy Hunt, mentioned that the Government has been making challenging choices to stabilize the budget after the COVID-19 crisis and the invasion of Ukraine by the Russian President Vladimir Putin.
"He stated that we have appropriately allocated billions of funds to shield households and companies from the drastic consequences of the pandemic and the energy scarcity caused by Putin."
It would be unjust to burden future generations with a debt that they are unable to settle.
This is the reason why we have made tough yet essential choices to maintain financial stability and cut down inflation by 50% this year. Our aim is to stimulate economic growth while decreasing the debt.
In May, the ONS calculated that the British Government shelled out approximately £1.5 billion on energy subsidies. These subsidies include the energy price guarantee, which limits energy bills to £2,500 annually, and the energy bills discount initiative.
According to estimates, the UK has spent £29.7 billion on schemes within only the initial half-year.
At first, the assurance of energy prices only covered the period from October to March, but it was prolonged until July.
Ofgem's annual energy price ceiling, set at £2,074, will take effect on July 1, replacing the previous one.
The OBR, which is responsible for overseeing the UK's financial management, has stated that a rise in borrowing was caused by factors such as the NHS pay agreement that cost the government an additional £2.7 billion, and an increase in debt interest costs.
According to the statistics, the sum of money that needs to be paid back due to debt owed to the central government is £7.7 billion in May. This amount is less than the previous year by £200 million but exceeds the estimation made by the Office of Budget Responsibility by £700 million.
Over the last year, the cost of the interest on Britain's debt has significantly increased due to the effects of extraordinarily high retail prices. This has particularly affected index-linked gilt stock.
The rate of inflation has decreased since it reached very high levels in October of last year. However, the latest data released on Wednesday indicates that consumer prices have not decreased in May as it was expected, remaining at a rate of 8.7%. Additionally, the RPI has only slightly decreased from 11.4% to 11.3% in April.
In the initial two months of the current fiscal year, the amount of money borrowed has surged to £42.9 billion, which is £19.6 billion greater than the same period last year. It's also £2.1 billion beyond the £40.8 billion forecasted by the OBR.
However, according to the ONS, they have adjusted their calculation for the amount of money borrowed for the last financial year ending in March 2023. The revision resulted in a decrease of £3 billion, bringing the new estimated borrowing amount to £134.1 billion.
The borrowing figure for this year is still above what it was in 2021-22 by a whopping £11.8 billion. It also stands as the fourth highest borrowing figure ever recorded on a monthly basis.
According to Martin Beck, who serves as the top economic expert for the EY Item Club, it is conceivable that borrowing may exceed the OBR's projected amount by up to £20 billion in the 2023-24 period. One of the key reasons for this is the substantial rise in interest rate expectations, which subsequently amplifies the expense of Government borrowing.
He mentioned that during the upcoming financial event in the fall, it is probable that the authorized predictor will consider the Government noncompliant with its fiscal regulations based on its existing strategy.
It is probable that the Chancellor will react by implementing further budget reductions after the election, on top of an already difficult financial situation.
The actual plan for how the government will spend money in the near future probably won't be decided until the Budget that comes after the election happens.