UK national debt is among lowest in G7 despite spiralling to 101% of GDP during the pandemic

UK national debt is among lowest in G7 despite spiralling to 101% of GDP during the pandemic

The UK’s national debt is among the lowest in the G7 group of nations as a percentage of economic output, data has revealed.

Official figures flagged that in the final quarter of last year, government debt stood at 101 per cent of gross domestic product (GDP), well ahead of the pre-pandemic period when government debt was just 84.4 per cent of GDP in the first quarter of 2020 before Covid-19 firmly took hold.

But the Office for National Statistics (ONS) highlighted that the balance sheet was in better shape than most of the other members of the G7, which includes Canada, the US, France, Japan, Germany and Italy. 

Germany was the only country in the group to have a smaller burden at 66.5 per cent of GDP for the final quarter of last year.

Outstripping them all was Japan, where government debt was a whopping 261 per cent of GDP.

Debt pile: Official figures flagged in the final quarter of last year showed Britain’s government debt stood at 101% of gross domestic product

The ONS data also noted the UK’s £2.5 trillion debt pile had improved in the first three months of this year, falling slightly to 100.5 per cent of GDP.

But the soaring amount of debt after the pandemic is likely to become a growing problem for the Government as the Bank of England is expected to raise interest rates by a quarter of a percentage point later this week, despite signs of cooling inflation.

Economists are predicting the central bank’s rate-setting Monetary Policy Committee (MPC) will increase rates to at least 5.25 per cent from 5 per cent on Thursday, the highest level since 2008.

The projected rise is lower than the 0.5 per cent hike the Bank imposed last month.

Recent data showing a fall in inflation to 7.9 per cent in June from 8.7 per cent in May has soothed nerves and sparked hopes rates will peak at lower levels than expected. 

This would potentially provide relief for mortgage holders who have been increasingly squeezed by higher interest payments.

Markets are pricing in that interest rates could peak at around 6pc but could remain high well into next year.

Some are even wondering if a 0.25 per cent hike this week is certain, with predictions that the MPC could push ahead with another 0.5 per cent hike to crush price rises quicker.

Matthew Ryan, head of market strategy at financial services firm Ebury, predicted the nine-member MPC could experience a ‘three-way split vote’ on interest rates, with some backing a 0.5 per cent hike, some 0.25 per cent and others keeping rates at their current 5 per cent level.

There are also fears that raising rates too high could tip the economy into recession.

Some are encouraging the Bank of England to follow the lead of its counterparts in the US and the eurozone who have paused or slowed their own rate hikes.