UK debt hits £2tn for first time

UK debt hits £2tn for first time

The UK’s debt has reached £2tn as government spending racked up amid the coronavirus crisis.

Official figures, published today (August 21), showed public sector net debt stood at £2,004bn as at the end of July — £228bn more than the same point last year and tipping over the £2tn mark for the first time.

The Office of National Statistics said this was 100.5 per cent of GDP, an increase of 20 percentage points on last year, and marked the first time national debt had dwarfed the size of the economy since 1961.

Borrowing just in the month of July is estimated at £26.7bn, £28.3bn more than in July 2019, which is the fourth highest borrowing in any month on record.

The coronavirus pandemic has had an unprecedented impact on government borrowing. 

Provisional estimates indicate that the £150.5bn borrowed in the first four months of the current financial year (April to July 2020) was almost three times the £56.6bn borrowed in the whole of the latest full financial year (April 2019 to March 2020).

Figures from the Office for Budget Responsibility suggest borrowing in the current financial year could reach £322bn, around six times the amount borrowed in the financial year ending March 2020.

Hinesh Patel, portfolio manager at Quilter Investors, said the government would be “comfortable” with the current level of debt given the low interest rates.

He added: “We are just over a month from the furlough scheme coming to a close and many of the measures introduced back in March are being withdrawn. 

“It is clear the government wants the economy back to normal swiftly.”

The ONS had better news when it came to the retail sales data. In July 2020, sales volumes increased by 3.6 per cent compared to June and were 3 per cent above the pre-pandemic levels of February 2020.

Food store sales and non-store retailing remained at high sales levels while fuel sales continued to rise.

Alistair McQueen, head of savings and retirement at Aviva, said: “This uptick in retail consumption may help ease concerns over the fragility of the UK economy – but not for long.

“The scale of the impact lockdown has had on economic activity levels has been revealed by the latest GDP figures. Fears over an imminent jump in unemployment were intensified by the ONS’ most recent labour market overview. 

“Attempts to increase footfall to UK high streets – including the Eat Out to Help Out scheme and VAT cuts – have been successful. However, a rapid recovery still seems a long way off.  

"Now, we must work together to support households under the most severe financial strain.”

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