Inflation and Government debt repayments

Albermarle

In the news today is the high cost of government debt interest payments in June ( £19.4 Billion). However I do not really understand some of the commentary, that high inflation is the main reason why the interest repayment cost had gone up so much. For example from the DT.

UK government borrowing has surged billions of pounds over forecasts as soaring inflation drives up the cost of servicing national debt. This was largely driven by debt interest of £19.4bn last month – the highest on record – as the retail price index hit new highs.

From the BBC

The recent high levels of debt interest payments are largely a result of higher inflation, the Office for National Statistics (ONS) said. This is due to the interest paid on government bonds rising in line with the Retail Prices Index measure of inflation, which hit 11.8% in June.

I was under the impression that most Government debt/bonds/Gilts were fixed interest, rather than inflation linked, but clearly I must be wrong, or misunderstanding something  ?

Lastonestanding

It was stated that the EU have low interest rates that are fixed, where as the UK government debt interest rates are not fixed.
Not sure if this was a choice?

Martico

According to today's piece in the FT (https://www.ft.com/content/6a7f5b1f-5110-4d36-a912-4ceb5a480eb2 ):

"A quarter of the UK’s government debt is index-linked"

masonic

There are three drivers of this: (1) I/L gilts (which make up a minority of government debt), (2) maturing gilts that need to be refinanced at current rates (given UK debt tends to be issued with long duration, this will only be a small minority per year unless the distribution is lumpy), (3) increased borrowing (as more debt in total means more interest to pay)

As usual, the data shared in the article is insufficient to get a handle on exactly what the situation is. They do introduce "borrowing" as the difference between spending and tax income, which raises a fourth factor, tax receipts, into the equation, but the numbers they quote are not put into context, so all we can really say is ooh those look like big numbers, things must be bad.

coastline

There's activity this year looking at the link . There'll be others.

United Kingdom 10-Year Treasury Bond Auction (investing.com)

As suggested 25% Indexed and 75% Conventional.

About Gilts (dmo.gov.uk)

From the quarterly reviews you can download the detail.

Quarterly Reviews (dmo.gov.uk)

talexuser

Surely all we need to do is cut taxes to solve everything? ;-)

pjread

In particular the BBC quote feels rather direct and clearly incorrect in the main in terms of direct causation; certainly the minority of debt is inflation linked, and I suspect most of that not to RPI. 

A cynical person might wonder as to the objectivity of the statement, assuming there wasn't further clarification.  A very cynical one might wonder whether the future of the licence fee had any connection to how it was positioned.

Albermarle

pjread said:

In particular the BBC quote feels rather direct and clearly incorrect in the main in terms of direct causation; certainly the minority of debt is inflation linked, and I suspect most of that not to RPI. 

A cynical person might wonder as to the objectivity of the statement, assuming there wasn't further clarification.  A very cynical one might wonder whether the future of the licence fee had any connection to how it was positioned.

They were only requoting what the ONS said.