UK deficit soars to record as inflation boosts debt payments

THE UK government sank deeper into debt in December as rising debt interest payments and the cost of insulating consumers and businesses from the energy price shock strained the public finances.

The budget deficit stood at a record £27.4 billion (S$44.8 billion), almost triple the £10.7 billion shortfall a year earlier, the Office for National Statistics (ONS) said on Tuesday (Jan 24). Economists had forecast a reading of £17.3 billion. 

That was driven by a £17.3 billion increase in debt interest costs, the biggest December jump ever.

The figures underscore risks to the UK economy as Prime Minister Rishi Sunak struggles to contain inflation near a four-decade high and strikes crippling the public services. A recession likely this year is expected to further dry up tax revenue and expand the deficit.

A Reuters poll of economists had pointed to public sector net borrowing, excluding state-owned banks, of £17.75 billion for December.

The ONS said the large figure for borrowing in December was “largely because of a sharp rise in spending on energy support schemes and an increase in debt interest”. BLOOMBERG, REUTERS