Question
(3) pursuant to Table B3 of the Pre-Budget Report, Cm 7747, what assessment he has made of the effect on UK interest rates of the level of net debt; and if he will make a statement;
Answer
[holding answers 14 December 2009]: UK public debt levels are forecast to remain in line with other major economies, and debt interest costs in 2010-11 as a share of GDP and public expenditure are forecast to remain below the levels in 1997. The Government have set out a credible plan for delivering a sustainable consolidation in the public finances over the medium-term, including the requirement set out in the Fiscal Responsibility Bill that public sector net borrowing is reduced to 5.5 per cent. of GDP or less by 2013-14. The average 10-year yield on government bonds for the current decade (to 9 December 2009) is significantly below the average in any of the previous three decades.The debt interest forecast uses interest rates based on latest market expectations. The short-term interest rates used for the 2009 pre-Budget report forecast are set out in box B1 in the pre-Budget report 2009 document.The relationship between gilt yields and gilt supply is not straightforward: it is difficult to separate out the effects of the level of supply from other influences on yields.