UK debt agency warns of challenges ahead as borrowings rises

UK agency warns: Robert Stheeman, the chief executive of the UK Debt Management Office (DMO), cautioned that Britain faces risks and challenges as it prepares for substantial borrowings in the coming years. Stheeman, who will step down at the end of June after more than 21 years, oversaw over 3 trillion euros ($3.8 trillion) of debt issuance during his tenure.

Government borrowings surged in 2008 during the global financial crisis and again in 2020 due to the pandemic. The UK's general government debt is forecast to reach 103.8 per cent of GDP in 2026, the highest since 1958.

Stheeman highlighted the challenges ahead, with gilt remits exceeding 200 billion euros annually, indicating significant risks and challenges for the future. His successor, yet to be named, will face these challenges head-on.

Despite these concerns, demand for UK government bonds remains strong, with recent auctions seeing high demand. Stheeman noted that Britain is not alone in facing high debt issuance, as many other rich nations are experiencing similar trends. The OECD expects total bond debt owed by member governments to rise to $56 trillion this year.

Stheeman also mentioned a shift in the DMO's bond issuance strategy, gradually reducing very long-dated bonds due to declining demand from the domestic pension and life insurance industries. However, he welcomed the growing appetite from international investors for British debt, dismissing concerns raised by the government's budget watchdog last year.

Foreign investors now hold over 30 per cent of British government bonds, up from 18 per cent in 2002. Stheeman emphasised that during the 2022 bond market crisis, it was funds servicing the British pension industry, not overseas investors, that stopped buying bonds. He noted that international investors, particularly reserve managers, are reliable and not prone to sudden withdrawals.

(with Reuters inputs)