Chancellor Nadhim Zahawi vowing to help households get through inflation crisis
(Picture: AFP via Getty Images)Chancellor Nadhim Zahawi admitted on Friday that soaring inflation is hitting Britain’s public finances with debt interest payments up by more than £2 billion.
The Office for National Statistics said Government borrowing hit £4.9 billion in July, significantly ahead of City predictions of some £2.8 billion.
Debt interest payments climbed to £5.8 billion, up from £3.5 billion in the same month last year due to Retail Price Index (RPI) inflation rocketing.
These payments are linked to RPI which leapt to 12.3 per cent in July, while the broader Consumer Price Index (CPI) - the more often quoted inflation measure - hit a new 40-year-high of 10.1 per cent, deepening the cost-of-living crisis for millions of households across Britain.
Mr Zahawi said: “I know that rising inflation is creating challenges for families and businesses, and it is also putting pressure on the public finances by pushing up the amount we spend on debt interest.
“To help people during this difficult time, Government support is continuing to arrive in the weeks and months ahead, targeted to those who need it most, like pensioners, people on low incomes, and those with disabilities.”
But shadow Treasury minister James Murray said: “Day after day we see new evidence of how the Tories are running our economy into the ground, and have no plan to get us out of this crisis.”
Michal Stelmach, senior economist at KPMG UK, said the latest figures meant “tough choices” for the next Prime Minister and Chancellor following the Conservative leadership election.
“The balance of risks to public finances has clearly shifted to the downside,” he added.
“The cost-of-living crisis will likely require further support to households, while a slowing economy will put downward pressure on receipts, making the fiscal targets ever less achievable.”
Foreign Secretary Liz Truss, the frontrunner to become Tory leader on September 5, and PM, is banking on tax cuts to drive economic growth, while former Chancellor Rishi Sunak has made tackling inflation his priority ahead of lower taxes.
Retail sales also picked up in July but continued to show longer-term signs that consumers are making cutbacks to save money amid soaring inflation, according to official figures.
Sales lifted by 0.3 per cent in July, significantly higher than economists’ expectations of a 0.2 per cent drop.
But sales fell by 1.2 per cent in the three months to July, reflecting a gradual decline in spending since the previous summer as the cost-of-living crunch squeezes people’s wallets.
Darren Morgan, director of economic statistics at the ONS, said: “Retail sales nudged up very slightly in July, but looking at the longer-term picture, they are continuing the downward trend which started last summer.
“Clothing and household goods sales declined again, with feedback continuing to indicate consumers are cutting back due to increased prices and concerns around affordability and cost of living.”
