Hardman & Co analyst, Nigel Hawkins, tells Richard Angus how UK public sector net debt (PSND) has now reached c£2.3tr. They address, too, the very real risks about its financeability if interest rates were to rise sharply.
Most significantly, PSND has doubled over the last decade, having broken the £1tr barrier as recently as 2011. The financial crisis and subsequent recession of 2008/09 and, more recently, COVID-19 have been key factors. The combination of rising inflation and likely rises in interest rates pose real risks. Moreover, there seems little inclination on the part of government to rein in public expenditure growth.
Whilst in recent years, PSND has been readily financed, this may not always be the case – think the mid-1970s and the controversial IMF loan. Interest rates may rise by well over 1% – the Treasury estimates that a 1% rise alone would cost close to £28bn per year in higher interest rate payments. Do not forget either the ca.£1.9tr public sector pension deficit which is outside the PSND figures.