The UK is heading for the highest debt interest costs in the developed world, it has been revealed today.
An unusually large proportion of government bonds linked to price rises is damaging the public finances as inflation remains persistently stubborn in Britain post-Brexit.
Forecasts by Fitch show the Treasury will spend £110 billion on debt interest in 2023.
At 10.4 per cent of total government revenue, that would be the highest level of any high-income country.
Around a quarter of UK government debt is in the form of so-called index-linked bonds, whose payouts fluctuate in line with inflation, making the country a huge outlier internationally.
Italy has the next highest share with 12 per cent of its bonds tied to inflation, while most countries have less than 10 per cent.
“We’ve had a very large inflation shock which is adversely affecting the public finances and that is obviously a key driver of the sovereign credit rating,” said Ed Parker, global head of research for sovereigns and supranationals at Fitch.
The agency reiterated in June its negative outlook on the UK’s double A minus credit rating, citing “the UK’s rising government debt and uncertain prospects for fiscal consolidation”.
Parker said a negative outlook signals that a downgrade is “more likely than not if current trends continue” and that the agency would normally hope to clarify a negative outlook within two years.
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