The government pays £ 2bn a month to repay UK government bonds … and the cost is set to spiral
The government pays £ 2 billion a month to serve the country’s growing debt pile.
Interest claims will reach £ 24.8bn in 2021-22 and will rise to £ 33.7bn in 2025-26, according to budget documents.
The numbers are large, but manageable given the record low borrowing rates. However, there are concerns that rising interest rates could significantly increase the cost of debt repayment and further damage the already squeaky public finances.
According to budget documents, interest claims on UK government bonds will reach £ 24.8 billion in 2021-22 and will rise to £ 33.7 billion in 2025-26.
In the budget, Prime Minister Rishi Sunak said: “Our borrowing costs are affordable for now, but interest rates and inflation may not stay low forever.”
A 1 percentage point rise in interest rates against the backdrop of a surge in post-pandemic inflation will add £ 20.8 billion to debt interest payments in 2025-26.
This brings the total to £ 54.5 billion, almost double the forecast. This will hit the snack in the fight to balance the book.
And if the interest rate bill of about £ 20 billion is raised in 2025-26, it will be more than wipe out the £ 17 billion that the prime minister wants to raise that year through a corporate tax hike.
“The snack was” lucky and hostage to the financial markets, “said analysts.
“Inflation concerns could still open the door to the prime minister’s best plans,” said Wraith Karaf of investment platform AJ Bell.
Inflation has been largely subdued in recent years, averaging 2.5% over the last 12 years, approaching the Bank of England’s 2% target.
The same is true in the United States and Japan, where the aging population has slowed economic activity and the rise of Internet retailers has pushed down the prices of daily necessities.
The lack of inflation has allowed central banks to stimulate markets with newly generated funds to combat the financial crisis and pandemics, but this era may be nearing its end.
Yields on UK 10-year bonds rose from 0.2% in January this year to 0.8% due to nervousness over rising inflation.
In the US, yields rose from 0.8% in November to 1.6% last week. Yields go up when bonds are sold.
Government pays £ 2bn a month to service swelling government bonds
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