The pound slumped to a new 37-year low today after the latest official figures showed the interest payment on Britain’s public debt ballooned to a record £8.2 billion last month.
In early trading sterling was down half a cent against the dollar at $1.1334, a level not seen since it flirted with parity in 1985.
The latest fall came as the Office for National Statistics (ONS) revealed that the Government borrowed £11.8 billion in August. That was £2.6 billion less than in August 2021 but £6.5 billion more than in pre-Covid August 2019, when it was £5.3 billion.
The £8.2 billion debt interest was £1.5 billion more than in August 2021 and the highest August figure since monthly records began in April 1997. Soaring inflation has dramatically increased the interest bill on index linked gilts, which make up arounds a quarter of the total.
The latest figures comes two days before Chancellor Kwasi Kwarteng is expected to unveil a tax giveaway worth as much as £35 billion in a bid to kick start economic growth.
The deficit is expected to grow far wider as the huge package of energy bill support to households and businesses kicks in from next month
Today he said: “Our priority is to grow the economy and improve living standards for everyone — with strong economic growth and sustainable public finances going hand in hand.
“As Chancellor, I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses, just as we did during the pandemic.”
Danni Hewson, financial analyst at brokers AJ Bell, said: “Can the UK afford to borrow more? It is a question that will be mulled over on social media and in news programmes for days to come. But in asking that question you also need to consider this one: can the UK afford not to borrow more?
“Debt levels have soared to 96.6% of GDP, a rather eye-watering jump of 1.9% compared to last year, and debt payments have been seared with the hot torch of inflation. But without additional support many households and businesses simply won’t be able to function.
“Sterling has tumbled again this morning, partly because of the impending rate decision from the US Federal Reserve, which is broadly expected to further bolster the dollar, but partly because markets don’t feel soothed by the numbers they’re seeing.”
Martin Beck, chief economic advisor to the EY ITEM Club, added: “Borrowing will rise over the second half of the fiscal year, as the majority of support to help households and businesses pay their energy bills takes effect.”