John Healey facing fresh challenge ahead of first budget as UK debt approaches £3tn
UK debt is lower than last year but still remains £2.3bn ahead of the OBR's previous forecast
John Healey will face a fresh challenge ahead of his first budget on October 28th as UK debt approaches £3tn, the Office for Budget Responsibility (OBR) has announced.
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The cumulative debt of the UK was £56.7bn in the first four months of this financial year. This figure is lower than last year, but is still £2.3bn ahead of the OBR's previous forecast.
The Chancellor will face a glum picture of national finances at the October Budget – marking a more despondent tone than that which was forecast at his predecessor Rachel Reeves’ spring statement.
In March, the Iran war had just started, and Reeves had considerable financial headroom of £23.6bn.
However, analysts estimate that a sizeable chunk of that may have been reduced by higher inflation, slower growth and increasing bond yields.
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The yield on government bonds has been pushed up by changes in global bond markets in recent days, causing new challenges for the chancellor.
Due to the size of the UK’s national debt, small changes in interest rates can be costly over time.
In July, the ONS announced that total public debt was £2.98tn, or 94% of GDP – an increase of £96bn on a year earlier – aligning with Labour’s goal to borrow for investment in infrastructure projects.
Addressing July’s public finances, Healey said: “Fiscal discipline is the bedrock of our UK economic stability and national security, which is why we are committed to meeting our fiscal rules, with a buffer against global uncertainties.
“We are cutting the deficit faster than any other G7 economy, while giving people a bit of breathing space with cost of living pressures and focusing support to get young people into work.”
In order to fund the defence investment plan, Healey will need to source an additional £1.2bn – the sticking point that resulted in him resigning as defence secretary in June, after he claimed the allocated budget was not sufficient to protect the nation.
On Friday, new data indicated that the UK economy improved in August. A survey of purchasing managers found that the output of the private sector increased at the fastest pace since April, prompted by the services sector.
The S&P Global survey suggested the economy could grow by around 0.3% in the third quarter of this year.