Week 38, 2011: Public Sector Net Debt

Summary: The Office for Budget Responsibility (OBR) bumped up their forecast for public sector net debt when they reviewed it in March, and worse than expected GDP figures might force them to do the same again.

What does the chart show? The chart shows UK public sector net debt (the amount of money/credit owed by the UK government) as a percentage of GDP, measured at the end of March in each year. The black line shows the confirmed numbers for previous years from the Office for National Statistics (ONS), while the blue and red lines show the OBR's November 2010 and March 2011 forecasts up to 2016.

Why is the chart interesting? As you can see from the chart, the OBR have already revised their initial forecast upwards (although they still predict a peak in 2014). Lower than expected GDP figures may very well force them to revise them upwards again. Low GDP growth has a strong effect on these numbers, both because they are measured as a percentage of GDP (and so, even with net debt remaining constant, the percentage will go up as GDP decreases) and because as the economy slows down, the pressure on government finances tends to increase as tax revenues fall and demands for spending increase.

You can see the effect of the recession in 2008 quite clearly as public sector net debt rockets from around 35% to 60% of GDP over three years. Will we hit 75% (or worse) in another three years?