- A high proportion of UK government debt is inflation-indexed. Rising RPI has seen interest payments soar
- Will the new prime minister still have room to loosen fiscal policy?
The Conservative party leadership election has turned into a fiscal tug of war. On one side, Liz Truss has unveiled plans for an emergency tax-cutting budget. On the other, Rishi Sunak has refused to match proposed tax cuts and warned that reductions could fuel inflation. No surprise that interest in public sector finances feels particularly heightened this month. And as it happens, those finances are proving particularly interesting.
According to the ONS’s June report, overall borrowing reached £22.9bn in June – £4.1bn higher than this time a year ago, and £0.6bn more than the OBR forecast. What’s more, government debt interest hit the highest level since monthly records began, reaching £19.4bn due to the impact of soaring inflation on index-linked gilts.