A UK Government fiscal watchdog has argued that the UK may not be able to “inflate away” the debt it currently owes because of rising interest rates. Richard Hughes, the Office for Budget Responsibility chief, said Government revenue was forecast to suffer due to the coronavirus crisis and the consequences of the global financial crisis of 2008. He warned these calamities would add an additional 20 percent to the UK’s debt to GDP ratio.
Mr Hughes, who was speaking to the BBC on Tuesday, said that the UK might not be able to reduce the value of what it owes via inflation.
He said: “It used to be the case that countries could inflate their debt away.
“However, that is now less and less the case.
“We’ve got a shorter average maturity rate.
“Currently, more of our debt is directly linked to inflation.
“This means that interest goes up automatically with a rise in inflation.”
The UK currently owes a staggering £2.2 trillion in debt.
In 2019, the amount of national debt owed by the UK Government to international gilt holders was found to be 85.4 percent of the nation’s GDP.
Mr Hughes said that this could cost the UK Government an additional £3bn a year.
With the Government struggling to bring day-to-day spending down and the consequences of the prolonged coronavirus furlough scheme, the risk that the UK’s debt to GDP ratio will increase.
Mr Hughes said that the additional pressure from the coronavirus pandemic could tally an extra £10bn a year.
Mr Hughes warned that these “are pressures that need to be addressed”.