Inflation pushes UK government interest costs in June to fresh record

Surging inflation led interest payments on UK government debt to hit the highest amount on record in June.

Interest payments paid by the government for last month hit £19.4bn.

It pushed government borrowing for the month up to the second-highest June level since records began in 1993.

Borrowing – the difference between spending and tax income – was £22.9bn during the month, up by £4.1bn from a year earlier, the Office for National Statistics said.

The interest payments were more than double the previous monthly record set in June 2021.

Responding to the figures, Chancellor Nadhim Zahawi said he recognised there were risks to the public finances, including from soaring inflation.

“That’s why the government has taken action to strengthen the public finances, and in their latest forecast the Office for Budget Responsibility [OBR] assessed that we are on track to get debt down.”

The recent high levels of debt interest payments are largely a result of higher inflation, the Office for National Statistics (ONS) said.

This is due to the interest paid on government bonds rising in line with the Retail Prices Index measure of inflation, which hit 11.8% in June.

With interest payments likely to remain high beyond June as inflation continues to rise, the figures will pose a big challenge to whoever becomes the new Conservative Party leader and prime minister.

The balance between tax and spending has been a key point of difference between the two remaining candidates in the race to replace Boris Johnson.

While Foreign Secretary Liz Truss has pledged to slash taxes immediately, her opponent, former chancellor Rishi Sunak, says this risks fuelling inflation.

Hoa Duong, economist at PwC, said the figures indicate a “difficult balancing act”.

“While tax cuts could ease business cost pressure and encourage growth, this could push up inflation, exacerbating the current pay squeeze. At present this means a choice between focusing on managing the deficit or tackling the cost of living rises, but not both.”

Danni Hewson, a financial analyst at AJ Bell, said at the moment, fiscal policy requires “an ability to balance on a tight rope”.

“Families wondering why the government isn’t doing more to help them deal with their strained finances need to understand that the Treasury’s fighting its own battle with inflation,” she said.

“With inflation still running hot, things are only going to get more expensive particularly as some of that debt rolls over and refinancing is going be substantially more expensive.”