UK must be nimbler with finances if rates rise – budget watchdog By Reuters

© Reuters. A person exits Bank underground station in the City of London financial district in London, Britain, June 11, 2021. REUTERS/Henry Nicholls/File Photo

LONDON (Reuters) – Britain will have to be nimbler in the way it manages the public finances if interest rates go up, because government bonds carry shorter maturities than in the past and are increasingly linked to inflation, the head of the country’s budget watchdog said.

Richard Hughes, chairman of the Office for Budget Responsibility, said the government would have less time than in the past before its borrowing costs go up as growth and inflation return.

Even in the most benign scenario, strong economic growth would not significantly lower the stock of public debt – which has soared above 2 trillion pounds ($2.7 trillion) as a result of the COVID-19 crisis – he told lawmakers.

“The government’s ability to get breathing space from faster growth before interest rates catch up, or indeed (from) higher inflation before interest rates catch up, is just a lot less than it’s been in the past,” Hughes said.

Official data published earlier on Wednesday showed the government’s debt servicing costs rose to a record 8.7 billion pounds in June, pushed up by rising inflation.

Hughes said there needed to be clear and open communication between the Bank of England and the government about the likely path for interest rates.

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