The UK government is racking up debt, as borrowing increased in June after the government was forced to pay higher interest. The sudden debt increase was unexpected and shows that “austerity has failed” and that a course change is required, according to the Scottish National Party’s economic advisors, and comes at a time when the government and the economy is already weak.
Public sector borrowing, minus state-owned banks, rose to £6.9 billion in June from £2 billion in the same period in 2016, a rise of 43%. Year to date, financial borrowing is up £1.9 billion to £22.8 billion as inflation pushes up interest on index-linked bonds. Much of the inflation can be tied back to the weakening of the pound since last year’s Brexit vote.
“Today’s release shows that our national debt, at £65,000 for every household, is still too high and leaves us vulnerable to any future shocks,’ said a Treasury spokesperson. “That is why we have a credible fiscal plan to get debt falling and deliver the sound public finances needed for a stronger economy and higher living standards.”
The Office for Budget Responsibility (OBR), which acts as the country’s fiscal watchdog, forecasts total borrowing of £58.3 billion during the current financial year, though many people believe that to be a pessimistic estimate.
“June’s figures suggest that the public sector finances have started to deteriorate a little,” said economist Scott Bowman. “This could limit the scope for an easing in austerity and mean that fiscal policy will still provide a significant drag on GDP growth over the next few years.”
The numbers go against the Tory Government’s austerity agenda, at least according to the SNP. The plan was supposed to revitalize public finances, but it seems to have failed, and a replacement agenda must now be put in place.
According to the report from the OBR, the UK’s debt is higher than it was before the 2008 financial crisis, meaning the country is “much more sensitive” to higher inflation and interest rates.
Total government debt, excluding public sector banks, was £1.75 trillion at the end of June, equal to nearly 88% of the country’s gross domestic product. The OBR also recently put the public finances through the same stress tests used on banks and declared the government would miss its fiscal targets by a large margin.
The report comes as Chancellor Phillip Hammond is under pressure to pay public sectors more instead of financially supporting big businesses, but the weakened government wants to instead balance the budget. However, the new findings back up the Treasury’s claim that it doesn’t have enough money to do that with national debt so high. The ongoing Brexit negotiations and impending departure from the EU are also weighing on the economy.
June’s borrowing increase and the factors it leads to in the economic and political space could continue to grow through the UK. If the forecasts are correct, the economy could be facing the consequences for quite some time.