UK government interest bill swells at fastest rate in over a decade

Soaring inflation is swelling the government’s interest bill at the fastest rate in over a decade, reveal official figures published today.

Interest payments on debt held by the government climbed over £15bn, or 54.1 per cent, over the last financial year to November, the fastest rate of acceleration since 2010, according to the Office for National Statistics (ONS).

The over decade high interest payment rise illustrates Chancellor Rishi Sunak’s room to re-launch support schemes for businesses struggling to cope with a sharp pull back in consumer confidence after the emergence of Omicron is being squeezed.

The government’s interest bill rises in line with the cost of living due to a large proportion of its stock of debt being linked to the retail price index (RPI).

The 7.1 per cent rise in the RPI last month was not applied to November’s interest bill, meaning government interest payments will rise even further, igniting concern among analysts who warned the public finances are set to weaken significantly over the coming months.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The trend in public borrowing is about to deteriorate markedly.”

“Full-year debt interest payments look set to exceed the Office for Budget Responsibility’s forecast by £5bn, due to the recent pick-up in RPI inflation.”

Capital Economics’ Bethany Beckett warned RPI will stay around seven per cent until next April.

“The burden of higher interest payments is likely to continue to be a headache for the Chancellor in the coming months,” she said.

Last week, the Bank of England hiked interest rates for the first time in over three years, lifting borrowing costs 15 basis points from a record low 0.1 per cent.

As a result, bond yields are set to trend higher, meaning the government will likely have to offer higher interest rate to attract investors.