UK public debt now exceeds the size of the economy for the first time in nearly 60 years

The impact of the pandemic has pushed the UK’s public debt level above the size of the economy for the first time since 1963, the Resolution Foundation said today (Friday) in response to the latest public finance figures.

Public borrowing in May was the highest on record (£55.2 billion), and slightly higher than borrowing in April, which was revised down to £48.5bn. The Foundation notes that the Government has borrowed more in the first two months of this crisis (£103.7bn), than in the ten months following the collapse of Lehman Brothers in September 2008.

The extra borrowing has helped push the UK’s debt to GDP ratio above 100 per cent for the first time in 60 years, though the Foundation notes that other factors have pushed the UK towards this milestone. These include Bank of England schemes (QE and lending schemes add 10.1 percentage points to the debt to GDP ratio) and it is based on the Office for Budget Responsibility’s forecast for a deeper hit to GDP than current ONS data implies.

The Foundation adds while the debt to GDP ratio will continue climbing, record low interest rates mean that the cost of serving this debt is still likely to fall.

The Government has also faced a record net cash requirement of £126.2 billion since the start of this financial year. However, it is not struggling to find this cash.

The Debt Management Office has successfully raised over £138bn since mid-March from gilt auctions marked by strong demand and historically low yields in part reflecting extensive bond purchases by the Bank of England – with some gilts now being issued at a negative yield.

The Foundation says that revenues are likely to start recovering as the economy reopens, and that some spending will be eased as the Government’s emergency support – such as the Job Retention Scheme – is phased out.

However, the Government will still need to borrow significantly more for the foreseeable future as it moves to the next phase of its crisis response – a broader economic stimulus to support the recovery.

Charlie McCurdy, Researcher at the Resolution Foundation, said:

“Another month of heavy borrowing has pushed UK’s debt level above the size of its economy for the first time in 60 years. This shows how hard and fast the crisis has come about, with the Government borrowing more in the last two months that it did in the ten months after Lehman Brothers collapsed.

“Encouragingly, the Government isn’t struggling to finance this extra borrowing, while the cost of servicing this debt is still on course to fall.

“The priority now is to ensure the health recovery from the pandemic itself, and the economic recovery from the recession it created, remain on track.”