National debt poised to hit 100% of GDP

BRITAIN’S national debt is set to hit 100 per cent of GDP for the first time in 60 years, data from the Office for National Statistics will show on Tuesday.

The ONS is expected to say the Government borrowed £26.1billion in May, compared to £43.7billion for the same month last year. Public sector net debt has soared to £2.17trillion as the Government borrowed record sums to fund its pandemic response. It is currently equal to 98.5 per cent of the economic output.

Martin Beck, economic adviser to the influential EY ITEM Club think tank, said that given current Government borrowing trends and the fact that the ONS is set to factor in losses on coronavirus support loans, the national debt is on the cusp of hitting parity with gross domestic product. The last time that happened was 1961.

He added that if the

Government had not spent record sums on economic support measures like furlough, the damage done by the Covid outbreak would have been far worse. Britain has seen a stronger, faster recovery from the pandemic than it did from the credit crunch and global financial crisis because of it.

“It will be a symbolic moment when debt gets to 100 per cent of GDP, but in reality, does it matter?” Beck said. “The Government had to borrow like it did. It insulated the private sector from the worst ravages of what the pandemic could have done. We did not see that with the global financial crisis.”

Pantheon Macroeconomics chief UK economist Samuel Tombs agreed and said that given how easy it is for the Government to roll over and service its debts, its record borrowing to finance the pandemic response was the right move.

He said: “The Government had good reason to borrow like it did and it looks to have made a real difference to the trajectory of the recovery.”

On Thursday the Bank of England’s Monetary Policy Committee is expected to keep its base rate at 0.1 per cent, despite the spike in inflation.

The ONS said inflation, as measured by the consumer price index, hit 2.1 per cent in May and the Resolution Foundation think tank says it could hit 4 per cent in the coming months. That would reduce real household incomes by £700 per month.

Government plans to reduce Universal Credit in October will add to the squeeze on Britons. Resolution research director James Smith warned: “A squeeze on household incomes later this year is a significant threat to the strength of our recovery.”