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Fiscal danger of interest on reserves overblown
The UK Treasury’s plans for continued higher spending in response to the Covid-19 crisis have sparked fears about debt sustainability. The Office for Budget Responsibility remarked, in its November economic and fiscal outlook, that the higher stock and shorter maturities of UK debt have made public finances more vulnerable to future economic shocks, in particular, ‘To a sharp increase in short-term interest rates’, and that, ‘Since March, the sensitivity of debt interest to a one percentage point rise in short rates has doubled from £6bn (0.2% of gross domestic product) to £12bn (0.5% of GDP)’. A key ... (full story)