The debt of the British government reached 100% of GDP last month, marking the first time in recent memory that it has done so. This presents additional challenges for Finance Minister Rachel Reeves as she prepares her tax and spending plans.
The Office for National Statistics said that public sector net debt, excluding public sector-owned banks, increased from 99.3% in July to 100% of GDP for the first time since monthly records were kept in 1993.
According to Bank of England data, debt was last regularly at this level in the early 1960s, when the country was still recovering monetarily from World War Two.
Both both the COVID-19 outbreak and the global financial crisis, government debt skyrocketed. The increase as a percentage of GDP since then has also been aided by feeble economic growth.
Around 3.3 billion pounds more than in August of the previous year, the government borrowed 13.734 billion pounds ($18.29 billion) in August. A 12.4 billion pound deficit was indicated by a Reuters poll.
The data revealed an increase in current spending and social benefit spending, which was indicative of higher-than-normal inflation.
Rachel Reeves has cautioned that taxes will rise in her budget, which is due on October 30. However, she has excluded raising the rates of income, corporate, and value-added taxes, meaning there is little space for improvement in public services and increased investment.
During an interaction with Zawya, PwC economist Gora Suri said, “The August public finances figures highlight the challenging fiscal position facing the Chancellor ahead of her first budget.”
During the first five months of the 2024–2025 fiscal year, the government has borrowed a total of 64.1 billion pounds, which is around 6 billion pounds more than the Office for Budget Responsibility had predicted when it released its March projection.
For each of the past four months, the deficit figures have exceeded the OBR’s projection.
The Bank of England owns government debt of several hundred billions of pounds. Debt as a percentage of GDP increased to 92%, a record, from 91.6% in July when the BoE was excluded.