KPMG comments on today’s public sector finances data
“Debt interest spending goes through the roof amid soaring inflation” says Michal Stelmach, senior economist at KPMG UK.
“Debt interest spending goes through the roof amid soaring inflation” says Michal Stelmach
“Public sector net borrowing came in at £22.9 billion in June, reflecting the uplift on index-linked gilts from the recent spike in RPI inflation. Debt interest spending rose to a record high of £19.4 billion, up from the previous high of £9.1 billion recorded last year.
“Today’s figures put paid to the idea that inflation is an effective tool for reducing debt. The accrued debt interest in June is sufficient to fully offset the £18 billion expected yield from the income tax threshold freezes by 2025-26, which push people into higher tax brackets as their nominal incomes rise.
“Nonetheless, as debt interest is measured on an accrued basis, most of the actual cash outlay won’t be due until the bonds mature and the principal is repaid. Together with small coupon payments, this implies less immediate pressure on the government’s net cash requirement, as average maturity of index-linked gilts is currently 18 years.”
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