British public debt surged last month to its highest as a proportion of the economy since 1961, according to data released on Friday.
This increase adds to the financial hurdles that the incoming government will confront immediately after the upcoming general election in two weeks’ time.
In May, public sector net debt, excluding state-controlled banks, reached 2.742 trillion pounds ($3.47 trillion) or 99.8% of annual gross domestic product (GDP), up from 96.1% recorded a year earlier, reported the Office for National Statistics.
Despite government borrowing in May coming in slightly lower than economists’ expectations at 15.0 billion pounds, compared to a median forecast of 15.7 billion pounds in a Reuters poll, the increase in public debt persists.
With an election scheduled for July 4, Britain appears poised for a change in government, as Keir Starmer’s Labour Party leads Prime Minister Rishi Sunak’s Conservatives by a significant margin in the polls.
Public debt in Britain surged during the COVID-19 pandemic, exacerbated by sluggish economic growth and the Bank of England’s interest rates reaching a 16-year high.
During the same period, most other Western countries also experienced significant increases in debt, with British debt levels remaining lower than those of the United States, France, and Italy.
In the first two months of the financial year, borrowing in Britain totaled 33.5 billion pounds. This amount was 0.4 billion pounds higher than the same period in 2023 but fell short of the government’s March budget forecasts by 1.5 billion pounds.
Economists at Capital Economics noted that the lower-than-expected borrowing figures were primarily due to reduced public investment.
They warned that this scenario is unlikely to provide much reassurance to Britain’s incoming finance minister.
Alex Kerr, assistant economist at Capital Economics, commented, “They do little to reduce the scale of the fiscal challenge that awaits them, in part because of the upward pressure on the debt interest bill from higher interest rates.”
Both Labour and the Conservatives plan to adhere to current budget rules, which mandate that official forecasts, last updated in March, must demonstrate a reduction in debt as a share of GDP by the fifth year of the forecast.
“Britain’s next chancellor faces tighter constraints with only 8.5 billion pounds of leeway due to higher-than-forecast interest rates,” Kerr noted, down from 8.9 billion pounds projected in March.
While both Labour and the Conservatives have pledged not to raise income tax, value-added tax, or other major levies, government budget forecasts from March suggest that tax as a share of GDP is set to reach its highest level since 1948.
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