If interest rates rise, the UK must be more financially flexible

LONDON (Reuters)-The head of the UK budget watchdog said that if interest rates rise, the UK will have to manage public finances more flexibly because government bonds have shorter maturities than in the past and are increasingly linked to inflation. .

Richard Hughes, chairman of the Office of Budget Responsibility, said that with the return of economic growth and inflation, the government will have less time than before before borrowing costs rise.

He told lawmakers that even in the mildest scenario, strong economic growth will not significantly reduce the stock of public debt-due to the COVID-19 crisis, public debt has soared to over £2 trillion (US$2.7 trillion) .

“The government’s ability to get breathing room from faster growth before interest rates catch up, or actually get breathing room (from) higher inflation before interest rates catch up, is much less than in the past,” Hughes Say.

Official data released earlier on Wednesday showed that the government’s debt servicing costs rose to a record 8.7 billion pounds in June, pushed up by rising inflation.

Hughes said that there needs to be clear and open communication between the Bank of England and the government on the possible path of interest rates.

(1 USD = 0.7312 pounds)