The chancellor, Jeremy Hunt, said he’ll do ‘whatever is necessary’ to drive down debt .
The pound fell and government borrowing costs rose yesterday despite a promise from Jeremy Hunt that he would do “whatever necessary” to bring down national debt.
With financial markets weighing the potential for continued instability within the Conservative party after the election of a new leader, the chancellor said getting the public finances on a stable footing was essential.
Government borrowing reached £20bn last month, £2.2bn more than in September 2021 and £3bn more than economists expected, sending debt interest payments to a record high.
Higher borrowing pushed them to £7.7bn last month, according to the Office for National Statistics, £2.5bn more than in September 2021 and the highest September figure since monthly records began in April 1997.
Hunt said: “Strong public finances are the foundation of a strong economy. To stabilise markets, I’ve been clear that protecting our public finances means difficult decisions lie ahead.
We will do whatever is necessary to drive down debt in the medium term.”
Government borrowing costs edged higher yesterday, with the interest rate on 10-year and 30-year government bonds climbing above 4%.
The pound was down a cent against the dollar, at $1.1121, before recovering some ground to be down 0.3% at $1.1205.
ING’s analysts, who had previously said 10-year UK government bonds would struggle to stay below 4%, warned Hunt a budget “delivered a matter of days into a new prime minister’s tenure, with a set of measures that have been crafted without their input” could further spook markets.
“There’s a chance that the plan gets pushed back a week or two – albeit at the expense of occurring after the Bank of England’s meeting on 3 November,” they said.
The Institute for Fiscal Studies thinktank said the steep rise in government borrowing over summer meant the total for the financial year could reach £200bn, more than double a forecast made in March by the Office for Budget Responsibility.
which provides the Treasury with independent forecasts. The OBR had estimated the government’s borrowing would hit £99.1bn in the year to the end of March 2023.
The then chancellor, Rishi Sunak, warned the deficit could rise as the impact of the war in Ukraine was felt in rising energy bills, wiping out the government’s scope to fuel growth with higher spending.
Carl Emmerson, an IFS deputy director, said the budget planned for 31 October should be delayed. He said the most recent figures gave “little guide to how much borrowing will be over the whole of this financial year, as the huge cost of government support for household and business energy use only began in earnest this month.
We need a credible plan to ensure that government debt can be expected to fall over the medium term. Given the timeline for determining the next prime minister, the degree of economic uncertainty, and the importance of getting this right, there is a strong case for taking a bit longer to make good decisions.”
The government’s total debt, excluding public sector banks, climbed to £2.45tn, or about 98% of gross domestic product – an increase of £213bn or 2.5 percentage points on September 2021.