Inflation Surge Pushes Up Britain’s Budget Deficit

Inflation in Britain

Debt Costs

 

A large surge in overall debt costs has been pushed up by severe inflation to 2x the previous monthly peak, added to the budget deficit in June 22. It’s the highest it has been since April 2021 data has suggested.

The ONS has said public sector borrowing rose to 22.8 billion pounds, well up from 12.5 billion in May 2022.

 

The Figures

 

The figures showed that Britain accumulated debt only interest of 19.4 billion pounds in June, which is more than 2x the previous record held, the ONS have said the leap in debt costs is because of the RPI inflation which is the benchmark for index-linked gov bonds.

On the subject of borrowing, over the first three months of 22/23 beginning in April, Britain has borrowed 55.4 billion pounds. Whilst this is in fact less than the same point this time last year, it is a 3.6 Billion oversight on the forecasts that were released in March by the OBS.

Due to those increased costs, a senior economist has said that this may limit the ability to provide relief on households by the next prime minister, and when energy bills rise and inflation sits at around 12% in October as predicted it will worsen the cost-of-living crisis.

 

The Government Position

 

Given the current economic situation, and Boris Johnson resigning, it has fallen into debate on which of the two Conservative candidates are discussing to get the helm of Britain. On one hand Liz Truss has suggested tax deductions effective immediately, whereas Mr. Sunak has suggested this will fuel inflation and take it higher than ever before, in response to the real data it has been recognised that there are risks to the public finances either way.

Liz Truss has promised more than £30B in debt-funded tax cuts for workers and businesses, as she seeks to match last years borrowing of £141.8B, as the current forecast was £110B (above the 99B target). But this means that the ballooning debt will give the new prime minister less headroom than planned and anticipated, as it takes overall borrowing almost 40% above target.

 

Britain’s Economic Stance

 

Alongside the chaotic budget deficit, the pound has fallen against the dollar as the BOE is set to discuss further interest rate rises, rumouring to be a rise of an additional 0.5% in July. The pound slumped 0.4% vs the dollar and euro as of 21.07.22 and is not expected to make a recovery until after the news has been dropped about the interest rate.

If the current rate of inflation is anything to go off, it seems the hyper-escalated inflation is coming to an end, as petrol prices stabilise and reduce the cost of goods will reduce. The ONS RPI figure for May 22 and June 22 only differentiated by 0.1%, whereas the previous month yielded a 2.1% rise and a 9% rise above this time last year, although the pandemic yielded low growth for the economy throughout 2021.

 

 

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