British public debt rose to its highest share of the economy since 1961, data showed on Friday, adding to the challenges the incoming government will face after the general election in two weeks.
Public sector net debt, excluding state-controlled banks, hit £2.742 trillion ($3.47 trillion) or 99.8% of annual GDP in May, up from 96.1% a year earlier, the Office for National Statistics reported.
This increase occurred despite government borrowing in May being slightly lower than expected, standing at £15.0 billion compared to economists’ median forecast of £15.7 billion in a Reuters poll.
Britain is likely heading for a change of government following the July 4 election, with Keir Starmer’s Labour Party far ahead of Prime Minister Rishi Sunak’s Conservatives in the polls.
Public debt in Britain surged during the COVID-19 pandemic and has been further impacted by slow growth and a rise in the Bank of England’s interest rates to a 16-year high.
Other Western countries also saw significant debt increases during this period, and Britain’s debt levels remain below those of the United States, France, and Italy.
Borrowing in Britain totaled £33.5 billion in the first two months of the financial year, £0.4 billion more than the same period in 2023, but £1.5 billion less than government budget forecasts predicted in March.
Consultants at Capital Economics said the lower-than-expected borrowing reflected less public investment and would offer little comfort to Britain’s next finance minister.
“They do little to reduce the scale of the fiscal challenge that awaits them, in part because of the upward pressure on the debt interest bill from higher interest rates,” said Alex Kerr, assistant economist at Capital Economics.
Both Labour and the Conservatives plan to adhere to existing budget rules requiring that debt as a share of GDP falls in the fifth year of the forecast, last updated in March.
Higher interest rates than forecast in March’s budget have reduced the leeway for meeting these rules to £8.5 billion, down from £8.9 billion in March, Kerr said.
Both parties have pledged not to raise income tax, VAT, or other major levies, but March’s government budget forecasts showed tax as a share of GDP is set to reach its highest since 1948.