Interest payments on public debt rose by almost 40% last month as rising inflation continues to add to the national debt, according to official data.
The Office for National Statistics (ONS) said government borrowing reached £4.9 billion in July.
It is well ahead of analysts’ predictions, which had forecast £2.8bn in borrowing last month, and takes the total budget deficit for the year to date to £55bn.
However, borrowing was £0.8bn below levels in the same month last year, but represented an increase of £5.9bn from pre-pandemic levels in 2019, when the government reported a surplus of 0.9 billion pounds.
It came as interest payments on the debt rose to £5.8bn in July, up from £3.5bn in the same month last year due to higher price index inflation in detail (RPI).
Earlier this week, the ONS revealed that RPI jumped to 12.3%, while the broader Consumer Price Index (CPI) inflation figure hit a new high of 40 years 10.1%.
Public sector net debt excluding public sector banks was £2.388 billion at the end of July 2022, or around 95.5% of GDP.
This is an increase of £188.4 billion or 1.4 percentage points of GDP compared to July 2021 https://t.co/BIcEhMCCp1 pic.twitter.com/oiRvZ9UTdL
— National Statistics Office (ONS) (@ONS) August 19, 2022
In response, Chancellor Nadhim Zahawi said: “I know that rising inflation is creating challenges for families and businesses, and is also putting pressure on public finances by increasing the amount we spend on debt interest.
“To help people at this difficult time, Government support continues to come in the coming weeks and months, targeting those who need it most, including pensioners, people on low incomes and people with disabilities.
“We are taking a balanced approach – safeguarding public finances while providing important help to households.”
Government spending rose by £3.4bn and £76.5bn in July compared to the same month last year, the ONS added.
Michal Stelmach, senior economist at KPMG UK, said the latest figures will mean “difficult choices” for the next chancellor after the Tory leadership election.
He added: “Public sector net borrowing continued to beat expectations in July, with the year-to-date result £3bn higher than the OBR’s forecast for the first four months.
“The balance of risks for public finances has shifted clearly to the downside.
“The cost of living crisis will likely require more support for households, while a slowing economy will put downward pressure on incomes, making fiscal targets increasingly less achievable.”
