Last month, Britain joined the club of countries whose national debt is greater than 100 per cent of economic output. According to an Office for National Statistics update, public debt exceeded £2 trillion, taking the debt to GDP ratio over 100 per cent for the first time in 60 years.
Crossing this mark doesn’t come as much of a surprise given the copious amounts of spending the UK has done on Covid-related policy. July saw the fourth highest borrowing of any month on record – the top three coming in the previous three months when the UK was under strict national lockdown. But it wasn't as much as feared by the Office for Budget Responsibility, mainly because tax receipts were stronger than expected.
Since the financial year began in April, the UK has borrowed £150 billion – roughly what it borrowed for the whole financial year of 2009/10. This could only send UK debt one way: up. But interest rates are still at a record low (thanks to quantitative easing) so the government's debt interest costs are actually going down – even while the national debt goes through the roof. We can expect the borrowing to continue through the autumn.
As tax revenue and national insurance contributions start to tick back up, borrowing levels are expected to fall. And the supposed one-off nature of many Covid-19 measures – including the furlough scheme – should, in theory, see borrowing levels revised down substantially come next year. But many factors remain unknown: what action will the government take if there is a second wave? What Covid-related policies are here to stay, that will translate into higher day-to-day spending?
A fast economic recovery will prove vital for getting the Britain’s deficit under control. Some good news came with the ONS’s updates today, showing retail sales volumes increased by 3.6 per cent from the month before, up 3 per cent from February – before the Covid-19 crisis. But as the unemployment crisis continues to loom, and recovery forecasts for the whole of the economy are slowly revised downwards, the country has a long way to go before it recovers from its largest economic contraction in centuries.