FirstFT: UK set to incur highest debt interest costs in developed world

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Britain’s public finances are taking a beating from what looks set to be the highest debt interest bill in the developed world this year.

The Treasury will spend £110bn on debt interest in 2023, according to a forecast by Fitch. At 10.4 per cent of total government revenue, that would be the highest level of any high-income country — the first time the UK has topped the data set that goes back to 1995.

Roughly a quarter of UK government debt is in the form of so-called index-linked bonds, whose payouts fluctuate in line with inflation, making the country a huge outlier internationally. Italy has the next highest share with 12 per cent of its bonds tied to inflation, while most countries have less than 10 per cent.

“We’ve had a very large inflation shock which is adversely affecting the public finances and that is obviously a key driver of the sovereign credit rating,” said Ed Parker, global head of research for sovereigns and supranationals at Fitch.

The agency reiterated in June its negative outlook on the UK’s double A minus credit rating, citing “the UK’s rising government debt and uncertain prospects for fiscal consolidation”.

Here’s what else I’m keeping tabs on today:

• Economic data: The IMF updates its World Economic Outlook, while Ifo publishes results from its business climate survey for Germany.

• Results: Earnings season continues with Alphabet, Alstom, Deutsche Börse, LVMH, Microsoft, Spotify, Unilever and Visa reporting. See the full list in our Week Ahead newsletter.

• UK strikes: Members of the Society of Radiographers begin a 48-hour strike across NHS Trusts in England as they seek better pay and conditions.

Five more top stories

1. Credit Suisse has been fined $388mn by US and UK regulators over the collapse of Archegos Capital for “significant failures in risk management and governance”. The collapse caused a $5.5bn trading loss and helped bring about the Swiss lender’s demise. Rival UBS, which took over the bank, could face corrective measures from Swiss regulators.

2. The US general counsel of EY has resigned after two years in the role, as the firm nears the conclusion of a probe into its failure to properly handle a staff cheating scandal. EY was forced under a settlement with US regulators to appoint an independent investigator to examine the actions of staff including “senior attorneys”. Here’s more on Ann Cook’s departure.

• Accountancy: US regulators have seen a jump in the number of flawed audits carried out by global accounting firms, with an even bigger increase in failures in the work of the firms’ non-US businesses.

3. GlobalFoundries has criticised subsidies that Berlin is planning to offer TSMC, the world’s biggest contract chipmaker, for a planned plant in the east German city of Dresden. The US chip company’s chief executive fears the funds to its Taiwanese rival would distort competition, he told the Financial Times.

4. Exclusive: US national security officials are scrutinising the Abu Dhabi sovereign wealth fund’s planned $3bn takeover of New York-based Fortress Investment Group, amid concerns in Washington over the UAE’s ties to China, people close to the situation told the FT. Read the full story.

5. JPMorgan Chase reimbursed former executive Jes Staley for trips to meet Jeffrey Epstein, according to allegations in court documents. Staley, who later became chief executive of Barclays, also testified under oath that he told JPMorgan boss Jamie Dimon about the late disgraced financier’s misdeeds in 2006. Here’s more from the New York court filings.

The Big Read

The latest productivity figures show that the UK’s output per hour worked was just 0.6 per cent above its pre-pandemic 2019 average in the first quarter of this year. Why do British workers turn out less for every hour they work than their counterparts in other advanced economies such as the US, Germany and France? Low investment and skills gaps may be partly to blame.

We’re also reading . . . 

Chart of the day

Saudi football club Al Hilal has approached Qatar-owned Paris Saint-Germain with a €300mn bid to sign Kylian Mbappé, a record-breaking offer for the French forward who has been locked in a contract dispute with his club. The approach from Al Hilal, which is owned by Saudi Arabia’s sovereign wealth fund, highlights Riyadh’s disruptive ambitions in sport.

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Take a break from the news

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Additional contributions by Benjamin Wilhelm and David Hindley