Private sector debt on course to rise by a record rate leaving UK at risk

The amount of UK debt being held by the private sector is on course to rise by a record rate, a think-tank has said.

The Institute for Fiscal Studies (IFS) warned that this added to the risk of foreign investors holding Britain to ransom in a crisis.

The Government is becoming increasingly reliant on the bond markets to finance borrowing, much of which has in recent years been soaked up by the Bank of England.

Now the Bank is reversing its £875billion quantitative easing (QE) programme, meaning it is selling the UK bonds – known as gilts – that it holds.

At the same time, more new gilts are being issued by the Treasury, with borrowing levels still twice as high as before the pandemic, according to the IFS.

‘To finance our elevated borrowing in the next few years, we are now asking the private sector to absorb historically high volumes of debt,’ the IFS said in a pre-Budget report. 

‘High gilt issuance, exacerbated by quantitative tightening, is forecast to result in the biggest increase in private sector holdings on record of 7.9 per cent of national income in 2024-25.’

Carl Emmerson, IFS deputy director, said: ‘To the extent to which these are international investors buying UK gilts, we have to worry about what if there was a UK-specific shock – those international investors clearly have other options of who they might lend to.’