Reuters, LONDON, July 6 – According to Richard Hughes, chairman of the country’s budget watchdog, Britain’s 2 trillion-pound ($2.8 trillion) debt mountain is becoming more vulnerable to inflation and interest rate shocks, which are getting more frequent. Hughes said the Office for Budget Responsibility expected the current surge in inflation, which the Bank of England estimates might reach 3%, to be temporary as the economy recovered from its pandemic lockdowns. However, he told BBC radio that the government’s debt stock, which stood at 100% of GDP with shorter average maturities and more inflation-linked bonds, was becoming increasingly sensitive to the risk of increased inflation and interest rates. “Governments used to be able to inflate their way out of debt. As time passes, this is becoming less and less the case “Hughes remarked. At 0830 GMT on Tuesday, the Office for Budget Responsibility (OBR) will release a report on the budgetary risks facing the British government. Hughes predicted that Finance Minister Rishi Sunak would find the report difficult to understand. “We are two decades into the twenty-first century, yet governments have already experienced two once-in-a-generation shocks: the 2008 financial crisis and the 2020 coronavirus pandemic, and there are reasons to believe that such significant shocks are growing more regular and severe,” he said. Since the outbreak of the coronavirus, Sunak has approved further spending and tax cuts totaling roughly 350 billion pounds, leaving the country with its worst ever peacetime budget deficit. He’s also promised to put the government’s finances back on “a sustainable footing,” and in March he announced intentions to hike company tax starting in 2023, as well as slash future government spending. (1 pound = 0.7204 pound) William Schomberg wrote the piece, while Michael Holden and John Stonestreet edited it. The Thomson Reuters Trust Principles are our standards./n
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