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Rising interest costs hit UK public finances

Rising interest payments on UK government debt last month curtailed an expected slump in public sector lending.

Net public sector borrowing was £14 billion in May, down £4 billion from the same month last year, according to data published Thursday by the Office for National Statistics. But May’s loan was higher than the £12 billion economists forecast by Reuters and well above the £10.3 billion projected by the Office for Budget Responsibility.

Interest payments rose to £7.6bn in May, well above last year’s figure and above the OBR forecast of £5.1bn following a surge in retail price inflation, which has many debt payments tied to it. Indexed government bonds make up 25 percent of UK government debt.

Rising interest payments were partly offset by the end of most Covid-19 government support schemes and higher tax revenues due to the strong labor market and the reopening of the economy.

Chancellor Rishi Sunak said: “Rising inflation and rising debt burdens pose a challenge to public finances, as well as to family budgets.”

He added that “taking responsibility for public finances now will not burden future generations with even higher debt repayments, and that we can safeguard our economy for the long term”.

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