Inflation Sends UK Debt Interest Payments Higher

Rising inflation led to government interest payments hitting a record high for the month of January, figures show.

Interest payments hit £6.1bn last month, the highest amount for January since records began in April 1997 and up from £4.5bn last year.

The payments are pegged to the Retail Prices Index (RPI) measure of inflation – which reached 7.8% in January.

January’s interest payments were, however, below the all-time high of £9bn in June last year.

Paul Johnson, director of the Institute for Fiscal Studies, told the BBC it was worth noting that “overall interest payments by the government are still at remarkably low levels” despite UK debt levels at the highest for 60 years.

“Year after year interest payments have come in below expectations and that has given the chancellor additional wiggle room,” he said.

The Office for National Statistics (ONS) said government finances recorded a surplus of £2.9bn last month as the economy opened up from lockdowns and tax receipts improved.

The surplus compares with a £2.5bn deficit in January 2021 – when spending on coronavirus support measures was higher.

However, the latest figure is still a £7bn smaller surplus than in January 2020, before the pandemic.

UK finances are normally healthier in January as self-assessment income tax receipts come in. Revenues from the self-assessed tax were £18.4bn last month, an increase of £2bn from a year earlier.

Borrowing from the end of March to January was £138.5bn – the second-highest for the period since records began in 1993.

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