Macroeconomics: UK economy, IB Economics

Interesting, and slightly technical article that looks at the nature of public spending in the UK, and notes that the government could plug the fiscal blackhole if it altered its position on paying interest on commercial bank deposits at the Bank of England.

As interest rates have risen, it seems that this has seen the government go from paying £4-5bn per year to somewhere near £35bn per year in interest, whereas other central banks, notably the ECB, operated a tiered system of interest rates on such deposits. 

Another month, another record for the public finances, although I'd add the coda that the phrase "since records began" only means since 1993. However, the £22bn borrowed represents the highest borrowing in that month,  and the monthly interest payments reached £7.3bn, the highest monthly payment since 1997. Factor in energy bill support and you can see why borrowing is so high. 

Overall the picture is mixed - most people see public borrowing as broadly in line with OBR forecasts for now, but worry that in future years it will be higher than expected. 

The latest public finance data is good news for the government, with government borrowing substantially down, to £7.8bn December, more than £8bn down on the same month last year. 

What's driven this improvement? Easy. Falling inflation has reduced interest payments on government debt. That said, total borrowing for the year so far is still £119.1bn and the national debt remains high, £2.67 trillion, equivalent to 97.7% of GDP, and at a level not seen since the 1960s. 

For those of you in Year 12, these may sound like alarming numbers. So how would you go about determining whether they are a concern or not?

For those of you in Year 13, thinking about forthcoming examinations you might think about trying to counter the Chief Secretary to the Treasury's view that "...it is right that we pay back these debts so future generations are not left to pick up the tab." Is it helpful to see government finances as equivalent to a household budget? 

One of the key components of the Spring Statement is the Office for Budgetary Responsibility's Economic and Fiscal Outlook, which has capped its UK growth forecast for 2019 at 1.2% - well below the trend rate.

However, on the plus side, it also notes that low inflation is likely to reduce interest charges on the national debt and that the public finances are also likely to improve - with "the deficit...£3bn lower this year and £8bn lower by 2023-24" according to the article.