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National debt leaves Chancellor in tight spot as budget looms

Date: 21 October 2021

21 Ocotber 2021

If you are covering the latest UK public sector finances data, please see the following comment from Hinesh Patel, portfolio manager at Quilter Investors:

“Now that the furlough scheme has drawn to a close, the level of borrowing will continue to fall at a faster rate than we have seen in previous months. Despite this, national debt remains at high levels - 95.5% of GDP. While in previous months the Chancellor has not appeared to be overly concerned by borrowing levels, owing to interest rates sitting at an all-time low, at the recent Conservative party conference he highlighted the long and costly road to recovery we face as a result.

“With rising inflation, markets are predicting the Bank of England will be forced to act, potentially as early as December. A rate hike will only add further costs and pressure to the government.

“With next week’s budget looming, this leaves the Chancellor in a tight spot. As he has said many times before, he will be forced to start bringing public finances ‘back on a sustainable footing’, but this will undoubtedly be difficult considering the many spending projects he has on the go such as reducing the ever-growing NHS backlog and the UK’s transition towards Net Zero. Given the concerns around the cost of living as we approach what is expected to be a difficult winter for many, the capacity for increased taxes looks challenging.

“If, as rumours suggest, we have a general election in 2023, this could be a decisive moment. The Chancellor will want to have made a big dent on the deficit before the time comes.”

Megan Crookes

External Communications Executive