The UK will continue to see quite a surge in the national debt

Today I thought it was time to take stock of the UK economic situation. This is because we find ourselves experiencing a sort of second wave of the Covid-19 pandemic.

Official figures show the UK has recorded a further 22,961 cases of COVID-19 after Public Health England announced it has identified 15,841 cases that were not included in previous cases between 25 September and 2 October due to a technical issue. ( Sky News )

Those numbers are something of a shambles and as a TalkTalk customer it does seem to have similarities to when Baroness Harding was in charge of it. Fortunately we are not experiencing a similar rise in deaths ( 33) as we try to allow for the lags in this process. But however you look at the numbers economic restrictions look set to remain and maybe increased as we note what is about to take place in Paris.

Paris and neighbouring suburbs have been placed on maximum coronavirus alert on Monday, the prime minister’s office announced on Sunday, with the city’s iconic bars closing, as alarming Covid-19 infection numbers appeared to leave the French government little choice. Mayor Anne Hidalgo is to outline further specific measures Monday morning. ( France24)

We have already seen more restrictions for Madrid. So the overall picture is not a good one for those who have asserted the likelihood of a V-Shaped economic recovery.Some area yes but others not and on a purely personal level passing bars and pubs in South-West London trade looks thin. All of this is also before we see the end of the furlough scheme at the end of the month.

Car Registrations

This morning’s update showed an area which is still in trouble.

The UK new car market declined -4.4% in September, according to figures published today by the Society of Motor Manufacturers and Traders (SMMT). The sector recorded 328,041 new registrations in the month – the weakest September since the introduction of the dual number plate system in 1999 and some -15.8% lower than the 10-year average of around 390,000 units for the month.

There are quite a few factors at play here. The car industry had its issues pre the pandemic. But added to it was the lockdown earlier this year followed by several U-Turns. People were encouraged to drive to work as the previous official view of encouraging public transport changed. But in London this was accompanied by the sprouting of cycle lanes in many places that looked rather bizarre to even a Boris Biker like me. This was not helped by problems with a couple of bridges and now official policy is for people to work from home again.

There is the ongoing background as to what cars we should buy? The internal combustion engine is out of favour but there are plenty of issues with batteries made out of toxic elements. The net effect of all the factors is this.

 With little realistic prospect of recovering the 615,000 registrations lost so far in 2020, the sector now expects an overall -30.6% market decline by the end of the year, equivalent to some £21.2 billion2 in lost sales.

Business Surveys

This was more optimistic this morning as Markit released the main PMI data.

The UK service sector showed encouraging resilience in
September, with business activity continuing to grow solidly despite the government’s Eat Out to Help Out scheme being withdrawn……….However, growth across the services sector was uneven with gains principally focussed on areas such as business-to-business services. Those sub-sectors more exposed to social contact such as Hotels, Restaurants & Catering reported a downturn in business during the month,

The better news for the large services sector fed straight into the wider measure.

The UK Composite Output Index….. recorded 56.5 to
signal a third month of growth.

This continues a welcome trend and was much better than the Euro area which recorded 50.4. However there are contexts to this which include the fact that the UK economy contracted more in the second quarter so we would expect a stronger bounce back. Also these numbers have proved unreliable so we should take them as a broad brush.

Also even with the furlough scheme the jobs situation looks weak.

Less positive, however, was on the jobs front, with private
sector employment continuing to fall at a steep rate.
September marked a seventh successive month of job
losses, with the greater decline again seen in services.
Cost considerations amid an uncertain near-term outlook
continued to weigh on the labour market.

National Debt

This has been an extraordinary year for UK debt markets which began like this.

The Net Financing Requirement (NFR) for the DMO in 2020-21 is forecast to be £156.1 billion; this will be financed exclusively by gilt sales.

Looking back to March we see that some £97.6 billion was due to redemptions of existing bonds. So we were planning to raise £58.5 billion of new debt. Also you might like to note that back then National Savings and Investments were expected to raise £6 billion this financial year.

If we press the fast forward button we now see this.

The UK Debt Management Office (DMO) is today publishing a further revision to its 2020-21 financing remit covering the period to end-November 2020. In line with the
update on the government’s financing needs announced by HM Treasury today, the DMO is planning to raise a minimum of £385 billion during the period April to November 2020 (inclusive) through the issuance of conventional and index-linked gilts.

So an just under an extra £229 billion and that is only until the end of next month. As of the beginning of this month we have issued in total some £330.5 billion or more than double what we planned for the whole financial year.

Bank of England

I am including it because the numbers above have been reduced in net terms by its purchases. So far it has bought an extra £241 billion. That number does not strictly match the numbers above as it began in late March but it does give an idea of the flows involved here.

That will continue this week with the Bank of England buying another £4.4 billion of UK bonds or Gilts and the Debt Management Office issuing another £8.5 billion.


We see a situation where we have seen a welcome bounce in UK economic activity but it still has quite a distance to travel. Sadly some areas look likely to be hit again. There must be a subliminal influence on going out and more restrictions seem probable. Thus the rate of recovery will slow and moving onto my next theme the size of the national debt and the fiscal deficit will grow. As to its size there are different ways of measuring it but here is the Office for National Statistics version.

At the end of August 2020, there was £1,718.0 billion of central government gilts in circulation (including those held by the Bank of England (BoE) Asset Purchase Facility Fund).

That will continue to grow pretty rapidly but there are a couple of reasons why we should not be immediately concerned. The average yield at the end of June was 0.29% so it is not costing much and the average maturity if we include index-linked Gilts was a bit over 18 years.

One way of measuring the surge in bond prices is to note that the market value then was some £2,659 billion so some have made large profits. This does not get much publicity. One area which has been affected is index-linked Gilts which if you allow for inflation were worth some £441.5 billion but had a market value of £805.2 billion. Why? Well they do offer a yield that is much higher than elsewhere as we see another casualty of all the QE bond purchases as they are at the wrong price and could manage to fall in price if inflation rises. Or their “yield” is -2.5%.

Imagine being a pension fund manager and having to match an inflation liability with that! It is a much larger issue than the debates over the Retail Price Index but strangely barely gets a flicker of a mention.





12 thoughts on “The UK will continue to see quite a surge in the national debt

    • Hi Chris

      In a technical sense they are very cheap to issue at these market prices. So the taxpayer is getting a very good deal in theory. However things could change ( a real surge in inflation) to upset that. So I agree with you that as conventional issuance is so cheap and is certain why not do more of it?

      To be fair the Debt Management Office has been selling a higher percentage of conventionals that the previous ratio.So they may think the same too.

  1. Hello Shaun,

    re “Imagine being a pension fund manager and having to match an inflation liability with that!”

    I would state that they will roll up the plans as collapse ripples through the pensions industry.

    Can we QE enough to stop that ? Whats a few extra noughts?


    • Hi Forbin

      The problem is that the whole longer-term savings market has been crippled by this. I am not sure how we get out of it because governments cannot afford higher bond yields and the bond investments made by pension funds over the past year or so would look dreadful.

      I am not sure they would get away with QE for the pensions industry,,,

  2. The scamdemic is no more deadly than normal flu; the whole lockdown nonsense is a fraud.
    It realy now is so palpable that the only way to deny it is to stick a finger in either ear & sing lalala so that you don’t hear.

    • infections come first and we are now running at well over 10,000 positive cases per day the North of England particularly Manchester near 500 cases per 100,000 which are worrying figures.

      Hospital admissions have shot up the last few weeks more than trebling.

      There may not be as many deaths but that is in part to better treatment but the virus can affect the organs far more than flue and the hospitals could become overwhelmed.

      I don/t think one can compare this virus to a flue imo its wrecking economies and no one knows where this will end.

      PMI figures were quite good but I happen to think worse figures will come later Cineworld are the latest to warn of over 5,000 job losses and there will be more lockdownns which will push unemployment further.

      Debt will rise but servicing the debt isn’t a concern with low global interest rates and I believe as I have said a number of times the BOE will cut in November to zero and then negative rates in 2021.

      What needs to be done is give up on saving our pubs and create other jobs in other areas and more infrastructure projects looked at. We led the world in the industrial revolution in engineering, cotton, hats, trains, railways, bridges we could do so again if there is a determination to do so.

      • hi Peter

        no economy = no NHS

        currently there are 26.7 million who have survived the virus.
        I greive for the 1.04 million who died from it
        I also greive for the 44 million plus who also died since January
        I rejoice for the fact 105 million plus births since January and the joy that comes with a new baby.

        I see that long term health is not known but what is known is its approx 10% of those who suffered seriously from the virus may have long trm health issues for the next 12/24 months as the virus targets ACE2 receptors .

        Studies continue .

        Sweden did not lock up its citizens and has not suffered as much as we have.

        I note that the death rate world wide is actually declining despite cases increasing

        The projected death rate in January was 20.8% , its now 4% and declining .

        by March April if that contiues then very few people will be dying from it or for that matter be in the serious to critical list .

        I wish everyone to be safe but not scared sh!tle$$ over this .

        ” and this too shall pass ”


      • Positive PCR test results do not mean infections or cases. A PCR test is non- specific, and was never meant to be, and should not be used as a diagnostic tool.

        There are huge numbers of false positives.

        • Over 90% of positives are false.
          Over 90% of true positives are trivial.
          The average age of someone who REALLY dies from covid is approx 80.
          The overwhelming majority of deaths from covid were victims with co-morbities who would have died this year anyway, or are not actually victims of covid, but tested positive (see above) in the previous 28 days before dying from a cause totally unrelated to covid.
          Meanwhile millions are suffering real health issues as a result of “anti-covid” measures.

          How can those who marked me down use a keyboard when they have fingers in their ears?

  3. Hello Shaun,

    re “Those numbers are something of a shambles and as a TalkTalk customer it does seem to have similarities to when Baroness Harding was in charge of it. ”

    yah I dumped Talk-Talk years ago and went to Plusnet – much better service and reliability .

    Unfortunatley as far as HMG go we’re stuck with ’em ………


    • Hi Forbin

      TalkTalk kept me by offering cheap Sky Sports. At the risk of tempting fate the reliability of their internet has been good. I recently renewed in spite of the Sky Sports deal being over. I got a speed boost ( x4) for less money that before so as long as it remains reliable I am reasonably happy.

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