According to Richard Hughes, the director of the OBR, Government revenue is expected to suffer as a result of the epidemic
In the middle of the coronavirus pandemic, the UK economy is becoming increasingly vulnerable to global instability, according to a Government economist.
Because of rising interest rates, a UK government fiscal inspector has suggested that the UK may not be able to “inflate away” the debt it now owes. Government revenue is expected to suffer as a result of the coronavirus epidemic and the effects of the global financial crisis of 2008, according to Richard Hughes, the director of the Office for Budget Responsibility (OBR). He predicted that these disasters would increase the UK’s debt-to-GDP ratio by 20%.
Mr Hughes stated in an interview with the BBC on Tuesday that the UK may not be able to reduce the value of its debts through inflation.
It used to be that countries could inflate their debt away, he remarked. However, this is becoming less and less true. We have a lower average maturity rate than our competitors. At the moment, a greater portion of our debt is directly connected to inflation. This means that if inflation rises, interest rates rise as well.
The UK’s current debt is £2.2 trillion.
The UK Government’s national debt due to international gilt holders was calculated to be 85.4 percent of the country’s GDP in 2019. However, according to current figures, the UK’s debt to GDP ratio is 97.4%.
The UK’s debt-to-GDP ratio is higher than that of Zambia (96%) but lower than that of France (116%).
The Government’s triple lock on pensions, according to Mr Hughes, poses a special fiscal risk to the UK’s national finances.
The Bank of England forecasts that earnings growth might be as high as 8% this year, resulting in a rise in the state pension.
Mr Hughes estimates that this will cost the UK government an extra £3 billion every year.
The UK’s debt to GDP ratio may increase as the government struggles to reduce day-to-day spending and the implications of the protracted coronavirus vacation scheme grows.
Mr Hughes estimates that the coronavirus pandemic will cost an additional £10 billion every year.
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