LONDON (Dispatches) — British government debt rose to the highest level in almost 60 years last month and retail sales slumped, underscoring the scale of the economic challenges facing whoever replaces prime minister Liz Truss after her administration imploded under the weight of its failed financial plan.
Public borrowing rose to 98% of economic output in September as rampant inflation increased interest payments on what the government owed, the Office for National Statistics said Friday. That’s higher than at any point since 1963, when Britain was still paying off debts accumulated during World War II.
Deepening the sense of gloom were figures showing that retail sales fell for a second straight month and are now 1.3% below pre-pandemic levels.
“Today’s weaker-than-expected public borrowing figures … are a reminder that amidst the current political turmoil, the tough task facing the government of demonstrating its fiscal credibility lie immediately ahead, rather than behind,” said James Smith, research director at the Resolution Foundation, a think tank focused on improving living standards for low- and middle-income people.
The new leader’s first task will be to restore credibility after Truss’ decision to announce 45 billion pounds ($50 billion) of tax cuts without saying how she would pay for them fueled concerns about spiraling government debt that unnerved investors and voters and forced emergency intervention by the Bank of England.
Treasury chief Jeremy Hunt, who took office last week, has reversed most of Truss’ program and pledged that debt will begin falling as a percentage of gross domestic product within the next few years. That has steadied financial markets after Truss’ plans sent the pound plunging to record lows, threatened the solvency of some pension funds and pushed borrowing costs higher for the government and millions of homeowners.
But people are watching closely to see how Hunt and his new boss — whoever it may be — achieve those goals at a time when the demands on government are rising.
The government has already promised to spend 60 billion pounds to shield homes and businesses from high energy prices, and demands are growing to boost welfare benefits and public pensions with inflation running at a 40-year high of 10.1%. The National Health Service, schools and public transportation providers also are seeking more money to cover soaring costs.
Pound Sinks as UK Economic Uncertainty Rises
The pound fell against the dollar as new figures showed a gloomy picture for the UK economy.
Sterling slipped to $1.11, after rallying on Thursday as prime minister Liz Truss resigned.
However, it clawed back losses on Friday evening and was back up to around $1.12 against the dollar.
The volatility in the pound came after official figures showed government borrowing rose to its second highest September on record.
Meanwhile, people are shopping less than they did before the coronavirus pandemic, according to figures from the Office For National Statistics (ONS).
Retail sales fell by more than expected last month, dropping 1.4% and continuing their slide from August, the official figures showed.
The pound’s latest slide comes after a period of volatile trading for the currency.
It plunged to a record low against the dollar last month, while government borrowing costs rose sharply in the aftermath of the mini-budget. Investors were spooked after the government promised huge tax cuts without saying how it would pay for them.