In February, public borrowing rose to a new high for the month as the government paid out subsidies to cap energy bills for households and businesses, according to official figures.
Net borrowing was 16.7 billion last month, up by 9.7 billion compared with the same month in 2022, and the highest level of February borrowing since records began in 1993, according to the Office for National Statistics.
The increase was due to a 6.4 billion increase in government spending on subsidies, such as the energy price guarantee, which caps the average household energy bill at 2,500 a year.
The debt-to- GDP ratio was last seen when Britain was rebuilding after the Second World War in the early 1960s after the public sector net debt hit 99.2 per cent of GDP last month.
The government borrowed a total of 132.2 billion in the financial year to February to record the third highest cumulative borrowing over that period since monthly records began 30 years ago. The figure is 15.5 billion higher than in the same period last year.
The cost of servicing government debt, which is affected by the retail prices index measure of inflation, fell slightly to 6.9 billion, from 8.2 billion in the same month last year, but remains high by historical levels. Since April of last year, the RPI has been in double digits.
Borrowing is still high because households and businesses with rising prices are spending about 1500 per household to pay just about half of people's energy bills this winter, according to Jeremy Hunt, the chancellor.
It is one of our top priorities to halve our debt this year, as well as growing our economy and reducing debt, to bring these costs right down. Michal Stelmach, senior economist at KPMG UK, said: "We expect the outlook for public finances to improve over the coming months because of the expected 40 billion fall in energy and cost-of-living subsidies in 2023 -- 24 and the recent fall in government bond yields and RPI inflation, which together determine the cost of servicing debt.
He added that KPMG's forecast for growth is lower than the OBR s, with expected GDP of 3 per cent falling by 2027 -- 28. This could wipe out the current headroom of 6.5 billion to meet the fiscal rule of falling debt. In his Budget last week, the chancellor announced that he would meet his fiscal target to reduce debt by 2028, with the smallest margin for error any chancellor has had since 2010, when the Office for Budget Responsibility was established. The OBR is the government's tax and spending watchdog.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the big risk for the government is that the banking crisis causes a deterioration in the fiscal outlook as the public finances are not fully cushioned by lower gilt yields. She said cumulative borrowing for the current financial year is well below the level predicted by the OBR last week. This and the inclusion of policy reforms to student loans in the national statistics from next month will push borrowing down by billions.