Unprecedented record breaking of UK government debt and deficit

How much has the UK government debt and the deficit increased in June?

How did Boris Johnson’s resignation affect UK economic indicators?

How much has the inflation rate increased in the UK after the Covid-19 pandemic?

What economic challenges does the successor of Boris Johnson face in the post of Prime Minister?

The UK government debt and deficit have reached a record. Statistical data shows that the UK government’s debt registered a new record in June, despite the increase in taxes and interbank interest rates.

UK government debt and deficit in June

The UK government debt and the deficit reached £22.9 billion ($27.5 billion) last June, the highest amount June in nearly three decades. According to this report, the amount of UK government debt and deficit in June has increased by 4.1 billion pounds compared to last year. Meanwhile, according to published statistics, public expenses have increased by 9 billion pounds to 86 billion pounds. Although all European countries are in an economic crisis and inflation has increased uncontrollably, statistics and surveys show that the UK is in the worst situation compared to all member countries of the Organization for Economic Co-operation and Development (OECD).

Unprecedented jump in the inflation rate in the UK

The UK government debt and deficit occurred while the inflation rate in this country had an unprecedented jump. The unparalleled inflation index and the unbridled increase in the cost of living in the UK have put the island in the worst economic conditions of the last half-century. The fact that there is no prospect of improvement in the situation and the official authorities are warning about the worsening of the problem has shocked the country’s people. Before the war in Ukraine, it was predicted that the inflation rate would be 2% despite the pressures caused by Brexit and the Covid-19 crisis. But now economists predict that the inflation rate will reach over 11% by the end of this year due to the increase in energy prices.

The risk of economic recession in the UK

The UK government debt and the deficit have increased the risk of economic recession in this country. Last month, by increasing the interbank interest rate to the highest level in the previous 13 years, the Bank of England predicted the risk of economic recession in a statement. Bank officials are under pressure to increase interbank interest rates to reduce inflation. The interbank interest rate in the UK had risen by 0.25 percent every month since December last year when the UK government began easing corona restrictions and now stands at 1.25. Observers predict that the interbank interest rate will reach 2% early next year.

Boris Johnson’s resignation at the height of economic pressure

The UK government debt and deficit hit record highs under Boris Johnson. UK Prime Minister Boris Johnson was finally forced to resign; because many members of his party resigned from the government, but his popularity outside the parliament has also decreased due to various reasons. Rapidly rising inflation, declining economic activity and a cost-of-living crisis that could push millions of UK people into poverty, and uncertainty about trade deals with the EU are the main factors in his popularity decline. With the publication of the news of Johnson’s resignation, the London Stock Exchange index and the value of the pound rose against the dollar. Of course, the changes in the British economy were not only the result of the policies of this country’s government, and international factors also affected these changes.

The final candidates to succeed Boris Johnson

The future UK Prime Minister will take over the government while the debt and deficit of the UK government have reached a record. On the other hand, the dire economic situation and the government’s staggering debt are a severe warning to the new UK Prime Minister, who will take over power from Boris Johnson in about a month. The election for the post of UK Prime Minister started after Boris Johnson’s resignation. Foreign Secretary Liz Truss and former UK Chancellor Rishi Sunak are the candidates competing for the Prime Minister’s seat. Sunak promised his campaign that he would curb inflation and reduce taxes.

On the other hand, UK Foreign Secretary Liz Truss has remained loyal to the Prime Minister and has announced that she will reduce taxes on the first day of assuming the Prime Minister’s seat. Truss has claimed that only he can make the necessary economic reforms to save the country from the vortex of inflation and the high cost of living.

Economic challenges of succeeding Boris Johnson

Whoever succeeds Johnson in the conservative party, who becomes the party leader and the prime minister of the UK, will face significant economic and financial challenges. The trends that have caused tremendous economies to suffer are very complex, and almost all economies are facing the problem of inflation, weak service sectors and factory production, current account deficit, etc. The inflation rate in the UK is higher than in other G7 economies. All major economies have been damaged by the adverse effects of the Covid-19 epidemic on supply chains and the shock of the sharp growth in the price of energy and food, which is the result of Russia’s war against Ukraine. Still, the effects of the mentioned factors on the UK economy seem more fantastic than on other major economies. In May, the inflation rate in this country reached 9.1%, the highest rate in the last 40 years. This figure is also the highest among the G7 major economies. 

Negative UK economic outlook

In the winter of this year, each household’s average annual energy bill will increase by 50% to 3,000 pounds, equivalent to 3,600 dollars. British families have been exposed to a continuing decline in living standards. Wages are now unchanged from before the global financial crisis in 2008. The Bank of England announced in the financial stability report that the economic outlook of this country has become significantly negative.

Last month, the Organisation for Economic Co-operation and Development (OECD) predicted that the UK economy is moving towards inflationary stagnation and that the country’s gross domestic product will not grow next year. If this happens, the performance of the UK economy will be the worst among the G7. Little or zero economic growth is terrible news for the government’s debt situation; because debts have increased to 90% of GDP. Over two years, the government allocated a huge budget to help companies and families overcome the effects of the Covid-19 epidemic, and this budget has added to the debt and deficit of the UK government.

The UK government’s budget office has announced that if we add the negative impact of population ageing to other negative factors, we conclude that public debt will increase to 250% of GDP in the long run. This means that the next government cannot reduce taxes or increase spending. Future governments should act very carefully and implement effective debt reduction programs.

Final Remark

The Covid-19 epidemic has caused heavy damage to the economy of the UK government. The UK government debt and deficit are increasing day by day. The Office for National Statistics (ONS) data indicate that the country’s economy experienced the most significant annual loss in nearly three centuries in 2020. According to the results of this research, the economic growth of the UK in 2020 has fallen by 9.9% due to the implementation of three periods of nationwide quarantine and widespread closure of businesses.