Britain’s Public Debt Surpasses £2 Trillion For First Time, Now Exceeds Annual GDP

Britain’s government debt has surpassed the £2 trillion ($2.63 trillion) level for first time in history due to massive spending in response to the COVID-19 pandemic, according to the Office for National Statistics, or ONS.

As of the end of July, the debt figure of £2.004 trillion was more than 10% higher than from one year ago, having risen by £227.6 billion ($299 billion) over that span.

Moreover, the U.K. public debt now exceeds gross domestic product for the first time since March 1961. As of the end of July, the national debt was equivalent to 100.5% of GDP.

ONS also said government borrowing surged to a record £150.5 billion ($197.8 billion) in the current fiscal year -- about £26.7 billion ($35.7 billion) was borrowed in the month of July alone, the fourth highest amount for any month since recordkeeping began 1993.

The borrowing figures reflected the “extraordinary fiscal support the government has put in place to see the economy through the [COVID-19] crisis," said Ruth Gregory, senior U.K. economist at Capital Economics.

The U.K. Treasury’s independent Office for Budget Responsibility suggested that borrowing in the current financial year might increase to £322 billion ($423 billion) -- six times the figure for the fiscal year ended March 2020.

"This crisis has put the public finances under significant strain as we have seen a hit to our economy and taken action to support millions of jobs, businesses and livelihoods,” said Chancellor of the Exchequer Rishi Sunak. "Without that support things would have been far worse."

Sunak added: "Today's figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions. It is also why we are taking action now to support the growth and jobs which pay for our public services, by helping businesses to reopen safely and, through our plan for jobs, protecting, supporting and creating jobs to ensure that nobody is left without hope."

The U.K. has entered a recession this year and has lost about 730,000 jobs since the pandemic erupted.

Andrew Walker, economics correspondent at BBC, commented that it was inevitable the public debt would cross the £2 trillion threshold.

“Tax revenue has been hit hard by the pandemic as people and businesses earn and spend less,” he wrote. “Government spending on programs such as the furlough scheme has headed upwards. So the total amount owed has also increased rapidly.”

Walker noted however that the government's borrowing costs – i.e., the interest rates it has to pay -- remain low.

“And some of the extra borrowing in effect ends up with the Bank of England, which has been buying government debt in the financial markets under its quantitative easing [QE] program,” Walker added. “QE is not specifically intended to ease the government's financial strains -- it's meant to stimulate the economy -- but it does have that effect.”

Alison Ring, director of the public sector at the Institute of Chartered Accountants in England and Wales, said: “The big question [now] is how much permanent damage is being done to the economy, with accelerating job losses a concerning sign as we approach the autumn. How quickly debt continues to grow will also depend on any additional support that the Government might provide to sectors that are still struggling.”