Wednesday 21 July 2021 3:19 pm | Updated: Wednesday 21 July 2021 3:20 pm

Spending watchdog chief calls for fiscal policy to be more nimble

Richard Hughes, Chairman of the Office for Budget Responsibility, told the Treasury select committee that policy “needs to be more alive to factors that might drive interest rates higher” (Source: OBR)

The head of the government’s spending watchdog has called for fiscal policy to be more “nimble”.

Richard Hughes, chairman of the Office for Budget Responsibility, told the Treasury select committee today that policy “needs to be more alive to factors that might drive interest rates higher.”

Hughes highlighted that the UK public finances are heavily exposed to inflation risks as a result of a high proportion of government debt being index-linked, meaning yields rise in line with the retail price index – a measure of inflation in the economy.

The calls come as figures from the Office for National Statistics published today show the value of interest payments the government made to holders of public debt reached its highest level since records began in June.

Hughes also urged the Treasury and the Bank of England to improve collaboration on monitoring the path of future interest rates.

Members of the OBR flagged that, under their current forecasts, conditions to restore foreign aid spending to 0.7 per cent of GDP would not be met.