The size of the UK’s public debt has surged unexpectedly as rising prices put more strain on government finances than any time since the height of the pandemic.

A sharp rise in the cost of debt interest payments means the Treasury owes £20 billion as of September, new data from the Office for National Statistics (ONS) shows.

Officials have been blindsided as the figure is well above the £17 billion predicted by economists, and more than a third larger than government estimates calculated in March.

It’s the second-highest September figure since monthly records began in 1983, surpassed only by September 2020 when the government was borrowing historic amounts to fund Covid schemes such as furlough.

Monthly debt figures are typically compared like-for-like due to natural ebbs and flows throughout the year.

Adding to the gloomy picture were increasing signs of a slump on Britain’s high streets.

Retail sales fell further than expected by 1.4% in volume terms, a firm indication that people are doing less shopping due to cost of living fears.

ONS director of economic statistics Darren Morgan said ‘consumers are now buying less than before the pandemic’.

He added: ‘Drops were seen across all main areas of retailing, with falling sales in food stores making the largest contribution.

‘Retailers told us that the fall in September was partly because many stores were closed for the Queen’s funeral, but also because of continued price pressures leading consumers to be careful about spending.’

Worsening fears over the government’s ability to service its debt has fuelled much of the financial chaos that helped topple Liz Truss’ short-lived government.

Her raft of tax cuts, while not unheard of in times of economic stability, was widely seen by investors as coming far too thick and fast at a time when the country is heading into its worst cost-of-living crisis since the 1970s.

Banks, pension funds and insurance firms became less willing to buy government bonds, a type of IOU through which the Treasury raises money.

This meant the government had to offer a higher effective rate of interest on its bonds (known as ‘yield’) to keep up sales, pushing up the cost of borrowing.

The cost of borrowing has begun to fall again since the fiasco but still remains considerably higher than before the mini-budget was announced.

Get in touch with our news team by emailing us at [email protected].

For more stories like this, check our news page.

Source: Read Full Article