ABNA24 - Britain paid the highest rate to borrow since 1999 as fears about inflation and high debt levels heap yet more pressure on the public finances.
The Government borrowed £4.25bln for 10 years at an interest rate of 5.38pc on Tuesday, the Debt Management Office announced. The interest rate agreed has not paid for 17 years, according to The Telegraph.Higher interest rates in financial markets are piling more pressure on UK Prime Minister Andy Burnham and John Healey, his Chancellor, as they prepare for the Budget on October 28.
A sharp rise in market borrowing costs means the Treasury is increasingly locking in high costs, raising the interest bill for servicing Britain’s near-£3tln national debt.Higher borrowing costs are eroding Healey’s financial room for manoeuvre, making it increasingly difficult to fund Burnham’s priorities, including the reform of social care, a council housebuilding campaign and more spending on public services.In his speech to Labour’s party conference, the Chancellor called the scale of the debt “an assault on our common sense”, noting that Britain spends “more on debt than the Home Office, defence and justice put together”.
He said, “The cost of the nation’s debt is not just a number in a Chancellor’s Budget. It’s the money that we can’t spend on the NHS, on schools, on housing, on social care. On policing our streets, on controlling our borders, on defending our country.”
Britain’s near-£3tln debt pile amounts to 94pc of its GDP. That is smaller than France’s debt pile, which is equivalent to 119pc of its GDP. However, the country’s 10-year bond yield is lower than Britain’s, at 4.78pc compared to the UK’s 5.37pc.America’s debt of $40tln (£30.2tln) amounts to around 125pc of GDP. Washington pays an interest rate of 5.24pc on its 10-year bonds.
Borrowing costs have risen around much of the world, as high levels of government borrowing strain investors’ willingness to finance deficits and the war on Iran pushes up inflation. Britain has been particularly hard hit by rising rates.Jamie Searle, an economist at Citi, estimated that higher borrowing costs alone would have wiped around £8.2bln off the nearly £24bln of headroom that Rachel Reeves, Healey’s predecessor, left to hit the borrowing rules.That is before any further hit from changes to inflation, growth and migration forecasts is factored in.This leaves the Government with very limited space to raise spending or cut taxes to offer households relief from the cost of living or to seek to boost growth.
Searle said, “The PM/Chancellor’s plan for this Budget seems more grounded in offering ‘hope’ than big spending plans.”
Higher market borrowing costs are also filtering through to the real economy, pushing up mortgage costs.Families who bought a home with a mortgage last month paid an average interest rate of 4.6pc, according to the Bank of England. That is the highest rate in almost two years.At the same time, the number of mortgage approvals fell below 55,000 for the first time since late 2023.
Matt Swannell, chief economic adviser to the Item Club, said, “The mortgage market has come under significant pressure since the Middle East conflict intensified earlier this year.”“We expect the Monetary Policy Committee to raise Bank Rate in November and February. As a result, mortgage rates are likely to remain close to 5pc for the rest of this year and into next and will continue to weigh heavily on mortgage market activity,” he added.
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