Interest rate warning

Posted on 15 Mar 2022
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Rising interest rates threat to national debt With Britain now burdened with a record peacetime deficit, the Office for Budget Responsibility (OBR) has warned that increasing interest rates to dampen inflation could make the country’s debts "unsustainable" and cause serious damage to the wider economy. In a scenario that sees the Bank of England respond to “persistent inflation” of 4% over three years, and where the UK is charged more to borrow in debt markets, the cost of servicing debt could rise from 1% to 4% of GDP by 2050 - around £80bn in today’s terms. The OBR said: "Were rates to return to levels that were more normal in the past, it would raise the cost of servicing a given stock of debt and could – in extreme circumstances – push the debt-to-GDP ratio onto an unsustainable path." The OBR also raised red flags over unfunded COVID-19 legacy spending of £10bn a year and predicted the cost of hitting net zero targets over the next 30 years would be in the region of £469bn, swelling debt by 21 percentage points as fuel duty revenues fall drastically.

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