A potential hike in future interest rates is leaving the chancellor wary over borrowing without limits.
The cost of repaying the future debt bills may currently be low, spurred by the Bank of England’s quantitative easing and bond buying initiatives, but we don’t fully understand why rates are so depressed, Rishi Sunak has said.
“No-one really knows exactly, there are a lot of competing hypotheses on [interest rates],” Sunak told the CityAM podcast on Sunday. “We should have some humility about saying what we think will happen, how long [low rates] will last and what might happen to them in the future,”
Holding borrowing in check, he said, would be key in case servicing costs were jacked up going forward from the record 0.1 per cent levels seen today.
Managing public finances should be “sustainable over time”, he added.
Sunak says through the pandemic he has done “things I never imagined having to do as chancellor”, but has always been clear that “I can’t save every job, I can’t save every business.”
Sunak unveiled a further £4.6bn in Covid support last week, taking the total to £280bn since the start of the crisis.
Overall borrowing for the year was estimated at £394bn back in November, but the eventual figure will almost certainly exceed this given government support schemes have continued and widened since then.
Calls are growing for further help through a third national lockdown, however, after the Federation of Small Businesses estimated that a record 250,000 small firms would fold this year.
The picture for public finances will become clearer when Sunak presents his 2021 Budget on 3 March.
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