The Office for Budget Responsibility (OBR) has warned that without government intervention, UK public debt will become unsustainable from the 2040s onward, driven by an aging population and rising defence costs. The independent forecaster stated that debt would enter an ever-upward trajectory around that decade if no action is taken.
Defence spending gap
The OBR highlighted that defence spending would need to increase by an additional £28 billion per year to meet the government's commitment of spending 3.5% of GDP on defence, despite recent funding announcements in the investment plan. This underscores the fiscal challenges facing the next prime minister, Andy Burnham.
Thames Water creditors push ahead
Thames Water's creditors, a group of 100 institutional investors holding approximately £14 billion of the company's senior debt, are continuing discussions with regulator Ofwat on a £10 billion rescue proposal. They have held recent meetings and are willing to pursue the bid even if the company is temporarily nationalised under a special administration regime (SAR). Environment Secretary Emma Reynolds objected to the proposal in mid-June, citing an undue burden on consumers.
Bank of England eases capital rules
The Bank of England plans to loosen capital requirements for major UK lenders, including scrapping a longstanding buffer in the leverage ratio. This move would primarily benefit large domestic banks like NatWest, Lloyds, Nationwide, and Santander UK. The Financial Policy Committee (FPC) announced the changes on Tuesday, despite concerns about financial stability risks from rapid AI developments and debt-fuelled stock investments. The adjustments aim to reduce the financial cushion required to absorb losses, protecting consumers and taxpayers.
