 "Rishi Sunak")
Rocketing interest rates and inflation drove UK government debt above 100 per cent of GDP for the first time since 1961, dealing a blow to Prime Minister Rishi Sunak’s pledge to get it falling and denting hopes for tax cuts in the build up to an expected general election next year.
The bleak milestone was passed as spending exceeded revenue by $25.5 billion in May, more than private-sector economists and the independent Office for Budget Responsibility had forecast.
It left the budget deficit in the first two months of the fiscal year at £42.9 billion — £2.1 billion more than the OBR projected and almost double the same point last year.
The figures make it hard for Sunak to deliver the big tax cuts many Conservatives say are needed if the party if to avoid a defeat at the next general election. Opinion polls show the Tories consistently trailing the opposition Labour Party by double digits.
The data from the Office for National Statistics showed the overshoot was driven almost exclusively by factors related to the inflation crisis, which has prompted the Bank of England to raise rates from 0.1 per cent to 4.5 per cent since the end of 2021.
Support for household energy bills in May cost £3.6 billion, and inflation-indexing of benefits added £2.9 billion to welfare spending. UK inflation remained higher than expected for a fourth month, leading to a flurry of bets that the Bank of England will raise interest rates to near 6 per cent and drive up the cost of mortgages.
The Consumer Prices Index rose 8.7 per cent in May, the same as the month before, the Office for National Statistics said Wednesday. Core inflation, excluding food and energy, accelerated unexpectedly to a 31-year high of 7.1 per cent. Economists had expected a headline reading of 8.4 per cent and no change for core.
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The figures raise the specter of the Bank of England opting for a bigger rate increase on Thursday, adding to the quickest monetary tightening in four decades.
