One Trillion Landmark for Government Debt
The Office for National Statistic has released data which shows that net public sector debt, excluding financial interventions, reached a new high of 64.2% of GDP, according to the Centre for Economics and Business Research.
This increase has taken net public sector debt to over one trillion pounds which is a significant rise on the figure for the previous month where net public sector debt was of 62.8% of GDP which was equivalent to £977.1 billion.
There is a faint silver lining to this dark cloud. Today’s data showed that public sector net borrowing excluding financial interventions came in at £13.7 billion in December 2011.
Always looking at the bright side of things it is worth nothing that public sector net borrowing excluding financial interventions came in at £13.7 billion in December 2011 which was down on the £16.8 billion figure for December 2010 – a drop of 18.5%. Cumulative net public sector borrowing for the financial year to December has been declining since the 2009/10 financial year.
This is a consistent sign of improvement in the public finances.
Taking a deeper look into today’s figures, current receipts were £42.2 billion in December, a somewhat better showing than was achieved last December when receipts were £39.3 billion.
This represents a year-on-year increase of 7.0%, which is encouraging when compared to the previous December’s year-on-year current receipts growth rate of 4.2%.
The government’s focus on fiscal prudence has delivered one worthwhile reward: low interest rates on its debt.
A UK 10 year government bond now has a yield of 2.2%. Although, in signs that markets don’t find the UK’s debt reduction policies entirely credible, this figures has risen over the month.
Low expected inflation in the future means that 10 year UK bonds will offer almost no real return if they only pay out 2.2%, so this rate may well continue to climb.
Despite these mitigating factors, today’s data will make mixed reading for the government. They are on the right track, but are moving forward much more slowly than they had planned.
The Office for Budget Responsibility’s projections for deficit reduction, despite having undergone several downward revisions, are still overly bullish.
The OBR’s latest Economic and Fiscal Outlook publication predicts that annual GDP growth of 3.0% by 2015 and that public sector net borrowing will have fallen to 1.2% of GDP by 2016-17. The second prediction relies on the first holding true.
Since the first prediction is unlikely to hold, the second probably won’t either. The data released today by the ONS simply drive home the point that the government is likely to miss its deficit reduction targets.