UK government debt surpasses GDP for first time in 62 years

UK debt has risen above 100 per cent of gross domestic product for the first time since 1961 after public sector borrowing doubled in May.

The Office for National Statistics on Wednesday said net government debt hit 100.1 per cent of GDP last month, the first time the figure exceeded 100 per cent since March 1961.

The rise came after public sector net borrowing reached £20bn for May, £10.7bn more than in the same month last year, largely because of the cost of social security benefits and energy support schemes.

This was the second-highest figure for borrowing in May since monthly records began in 1993 and was higher than the £19.5bn forecast by economists polled by Reuters, as well as the £18.3bn expected by the Office for Budget Responsibility, the UK fiscal watchdog.

Borrowing in the financial year to May 2023 was £42.9bn, £19.6bn more than in the same two-month period last year and £2.1bn higher than forecast by the OBR.

“May’s poor public finances figures cast further doubt on the chancellor’s ability to unveil big pre-election tax cuts while still meeting his fiscal rules,” said Ruth Gregory, economist at Capital Economics, referring to UK chancellor Jeremy Hunt.

The ONS reported that in May “the additional costs of the energy support schemes and increases in both benefit payments and staff costs all increased public sector spending”.

It also showed that last month saw the lowest year-on-year increase in government receipts in any month since March 2021.

Samuel Tombs, economist at Pantheon Macroeconomics, said a sharp deterioration in the outlook for debt interest payments following a recent surge in government bond yields “suggests that the chancellor will not have scope to cut taxes before the next general election, which must be held by January 2025”.

He calculated the OBR would revise up its forecast for debt interest payments by about £39bn in 2024-25 and about £17bn in five years’ time, based on the current level of gilt yields and market expectations for interest rates.

Hunt said the government had “taken difficult but necessary decisions to balance the books in order to halve inflation this year, grow the economy and reduce debt”. Separate ONS data released on Wednesday showed inflation failed to decline as expected and remained at 8.7 per cent last month.

Michal Stelmach, senior economist at KPMG UK, said with a general election on the horizon, “finding a sustainable solution to balance the books amid new election pledges will undoubtedly be a tricky task for the government in the months ahead”.