New OBR chief Richard Hughes says government debt sensitive to rate moves

The new head of the UK’s fiscal watchdog said the country’s public finances had become more sensitive to changes in interest rates due to a change in borrowing terms.

However, Sir Charlie Bean, board member of the Office for Budget Responsibility (OBR), said people should not think there is a “great urgency” to close the government’s budget shortfall.

Economists say the UK is on track to borrow around £300billion this year as it supports the economy during the coronavirus pandemic. Public debt as a share of GDP is at its highest level since the 1960s.

Last week, Chancellor Rishi Sunak warned there were “tough choices” ahead. He said the government could not count on borrowing costs being at their current record high forever.

Today OBR Chairman Richard Hughes told MPs that UK public finances are ‘now more sensitive to interest rate hikes than they were before the coronavirus shock because we have a higher stock of debt”.

“They are also more sensitive because the average maturity of our debt is getting shorter and shorter,” he said. The real costs of debt servicing, however, have declined.

Hughes, a former adviser to the International Monetary Fund (IMF) and the government, replaced Robert Chote on Monday. The Treasury Committee heard from him and other OBR members today.

No “urgency” to make up the deficit

Bean said the public debt pile was not an immediate cause for concern. He said a large deficit is appropriate given the unprecedented circumstances.

“I think it’s worth saying that right now you shouldn’t think there’s a great urgency to close the gap,” he said.

However, he added: “As we go beyond the emergency, then it will be necessary to clean up public finances. He said the government should consider “building fiscal space to recognize that there will be future negative shocks down the road”.

Hughes said: “Debt reduction is a long-term game. It’s not something that happens overnight. »

Bean added that the resurgence of coronavirus cases and government restrictions will put the economic recovery on hold.