Red hot inflation to burn £20bn hole in UK public coffers

The Chancellor Of The Exchequer Delivers The 2021 UK Budget
Britain’s intensifying cost of living crisis will erode Chancellor Rishi Sunak’s room for tax giveaways in the run up to the next election (Photo by Chris J Ratcliffe/Getty Images)

Red hot inflation sweeping throughout the UK is set to burn a £20bn hole in the country’s public finances, one of the City’s leading economists warned today.

Britain’s intensifying cost of living crisis will erode Chancellor Rishi Sunak’s room for tax giveaways in the run up to the next election.

A swelling interest bill triggered by an old measure of inflation scaling to as high as 7.7 per cent will push the budget deficit much higher than the government’s spending watchdog’s forecasts.

The Office for Budget Responsibility (OBR) has severely undershot its forecasts for the retail price index (RPI), meaning it has pencilled it an unrealistic jump in the cost of the government servicing its debt.

“Debt servicing costs will be far higher than the OBR expected,” Ruth Gregory, senior UK economist at Capital Economics, warned.

“Our forecast for RPI inflation to be 2.8 percentage points higher than the OBR expects in 2022/23, might raise the government’s borrowing costs by a huge £14.3bn,” she added. 

More to follow.