High inflation is driving interest payments to record levels
Closed down shuttered retail shop space on Oxford Street on 7th September 2022 in London, United Kingdom. © Mike Kemp / In Pictures via Getty Images
The British government’s debt interest payable has risen to the highest level on record, the Office for National Statistics (ONS) reported this week.
The interest payable stood at £8.2 billion ($9.25 billion) last month, which is £1.5 billion ($1.7 billion) more than in August 2021, and the highest figure for the month since records began in April 1997, the ONS said, adding that the volatility in interest payable is largely caused by the inflation rates.
Annual inflation in the UK hit 9.4% in June, the highest rate in 40 years, but retreated to 8.6% in August.
The UK government borrowed nearly twice as much as expected in August, £11.8 billion ($13.3 billion) instead of £6 billion ($6.7 billion) forecast by the Office for Budget Responsibility, as the public sector spent more than it received in taxes and other income, the ONS explained.
Public sector net debt excluding public sector banks represented roughly 96.6% of GDP, which was an increase of 1.9% of GDP compared with the same period last year, according to the ONS.
Markets are concerned that the package of support measures for households and businesses announced by Prime Minister Liz Truss will push borrowing higher, and lead to the Bank of England aggressively raising interest rates.
In September, the British pound reacted to the economic instability in the country by plunging to its lowest level against the US dollar since 1985.
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