KPMG comments on public sector finances data - July 2023

“Domestic vulnerabilities drive a decoupling of UK fiscal position from its peers” says Michal Stelmach, senior economist at KPMG UK.

“Domestic vulnerabilities drive a decoupling of UK fiscal position from its peers”

“Public sector net borrowing was £18.5 billion in June and £54.4 billion in the first three months of the fiscal year, an increase of 29% on the corresponding period a year earlier. This was largely driven by non-interest spending such as energy support schemes and benefit payments, which include the latest disability cost of living payment estimated to have cost around £740 million in June.

“Heading into the next general election, the government will be wary that despite the successive fiscal rules, public sector debt has tripled over the past 20 years. While this is not unique to the UK, domestic vulnerabilities – including a shorter effective maturity of government liabilities, a larger share of index-linked debt, and a greater reliance on foreign creditors – leave the current fiscal position more sensitive to shocks compared to its peers.

“We estimate that UK gilt yields are currently trading around 140 basis points higher than a comparable benchmark for other major advanced economies. While the initial decoupling was triggered by market jitters around the time of the mini budget, the more recent spike reflects a greater persistence of UK inflation, consistent with higher rates in the UK necessary to bring it sustainably back to target.” 


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Notes to Editors:  


KPMG LLP, a UK limited liability partnership, operates from 20 offices across the UK with approximately 17,000 partners and staff. The UK firm recorded a revenue of £2.72 billion in the year ended 30 September 2022.  

KPMG is a global organisation of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients. 

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