New OBR chief says public debt sensitive to rate moves
The new head of the UK’s budget watchdog has said the country’s public finances have become more sensitive to changes in interest rates because of a change in borrowing terms.
However, Office for Budget Responsibility (OBR) board member Sir Charlie Bean said people should not think there is “great urgency” in closing the government’s budget deficit.
Economists say the UK is on track to borrow around £300bn this year as it supports the economy during the coronavirus pandemic. Public debt as a chunk of GDP is at its highest level since the 1960s.
Last week, chancellor Rishi Sunak warned there were “hard choices” ahead. He said the government could not rely on borrowing costs being at their current record-low level forever.
Today, OBR chair Richard Hughes told MPs that the UK’s public finances are “now more sensitive to interest rate rises than they were before the coronavirus shock because we have a higher debt stock”.
“They are also more sensitive because the average maturity of our debt has been getting shorter,” he said. The actual costs of servicing the debt have fallen, however.
Hughes, a former International Monetary Fund (IMF) and government adviser, replaced Robert Chote on Monday. The Treasury Committee heard from him and other OBR members today.
No ‘urgency’ in closing deficit
Bean said that the government debt pile was not an immediate cause for concern. He said a large deficit is appropriate given the unprecedented circumstances.
“I think it is worth saying that at the current juncture one shouldn’t think there is a great urgency in closing the deficit,” he said.
Yet he added: “As one goes beyond the emergency, then it will be appropriate to stabilize the public finances.” He said the government should consider “building in fiscal space to recognize that there’ll be future bad shocks further down the road”.
Hughes said: “Debt reduction is a long-term game. It’s not something that happens overnight.”
Bean added that the resurgence of coronavirus cases and government restrictions were going to put the economic recovery on hold.