Bank of England Governor Andrew Bailey is struggling to curb inflation in the UK. Official figures show that since the start of the pandemic, the growth rate is higher than that of any EU country except France.
UK public debt rose from 85.5% of gross domestic product (GDP) in the last three months of 2019 to 100.5% in the first three months of this year, a jump of 15 percentage points, according to the Office for National Statistics.
In contrast, in the EU, the debt burden rose from 77.5% of GDP to 83.7%. PCs over the same period — an increase of just 6.2 percentage points, less than half of the growth recorded in the UK.
This means that the UK's debt pile has grown at a faster rate than in all EU countries, with the exception of France, where the post-pandemic debt-to-GDP growth ratio was the same as in the UK. However, France's overall burden was much larger, at 112.4% of GDP at the start of the year.
A toxic cocktail of high government borrowing during the pandemic, sluggish UK economic growth and soaring borrowing costs mean a gap. between the UK and the EU has more than doubled.
At the end of 2019, the UK's debt burden as a percentage of GDP was eight percentage points higher than that of the EU. The gap is now 16.8 percentage points.
Barret Kupelian, chief economist at PwC, said: “Ultimately, the big difference in the UK is the lack of economic growth. This is the denominator of the debt-to-GDP ratio.”
In the first three months of this year, UK GDP was still 0.5% lower than at the end of 2019, compared to the eurozone. where it was 2.7% higher.
Sluggish growth in the UK is partly a holdover from the financial crisis, Mr Kupelian said.
Since then, productivity growth and business investment in the UK have slowed. Mr Kupelyan added that the key difference from Europe is the continued decline in UK labor force participation since the pandemic.
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George Buckley, Chief Economist at Nomura in the UK, said: “Excluding interest payments, the UK ran a whopping deficit in 2020, absolutely huge, far larger than the rest of Europe.
“During the pandemic, we had a bigger deficit. Back then, we had a weaker economic performance compared to other countries.”
Higher inflation in the UK also caused market turmoil, which pushed up government borrowing costs. British government debt yields have risen more than those of their European counterparts.
Mr Buckley added: «You get higher interest rates on higher debt.»
In addition, a much larger share of UK government debt is also index-linked, meaning it grows directly in line with higher inflation in the UK.
This came as a stubborn rise in prices in the euro area overshadowed stronger growth on Monday, a setback in Christine Lagarde's fight to contain inflation.
While headline inflation eased from 5.5% in June to 5.3% in the year to July, core inflation, which excludes energy and food price volatility, remained at 5.5%. It fell short of expectations for a fall.
Klaus Wiestesen, chief European economist at Pantheon Macroeconomics, warned that «alarmingly stable» service inflation is likely to remain high during the busy summer tourist season, adding to pressure on the European Central Market. The bank will raise interest rates to a new record.
Speaking ahead of the release of the data, Ms Lagarde, ECB President, warned that any rate suspension in September would not be «final».
This came after separate data released by Eurostat showed the single currency area rose 0.3% in the three months to June.
This is slightly higher than the expected 0.2% increase, and follows six months of near-stagnation.
Despite lower prices, headline inflation in the euro area has halved from a peak of 10.6% last autumn.
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