UK debt chief warns scale of borrowing leaves challenge for successor

A drone view of London’s Shard skyscraper with the Canary Wharf financial district in the background in London, Britain March 3, 2024. Photographer Yann Tessier/File Photo

By Reuters

Britain faces risks and challenges from the scale of borrowing it will need in coming years, though it can take some comfort from the fact many other countries are in the same boat, the head of the state debt agency said.

UK Debt Management Office chief executive Robert Stheeman is due to step down at the end of June after more than 21 years in the post, during which time he has overseen more than 3 trillion pounds ($3.8 trillion) of debt issuance.

After a relatively quiet start to his tenure, British government borrowing jumped in 2008 during the global financial crisis and again after the coronavirus pandemic struck in 2020.

British general government debt – the most internationally comparable measure, though a broader one than that preferred by the country’s budget watchdog – is forecast to reach 103.8% of gross domestic product in 2026, up from 100.0% late last year and the highest since 1958.

“We are facing gilt remits well in excess of 200 billion pounds annually,” Stheeman told Reuters on Tuesday. “The sheer numbers are going to be very big and that must bring risks, that must have challenges.”

Those challenges will be largely faced by Stheeman’s successor, who is yet to be named by Britain’s finance ministry. The government said last September that a decision would be made in early 2024 to allow a handover period.

“I’m optimistic that all will be revealed in the not too distant future,” Stheeman said.

In this financial year alone, the DMO must raise 265 billion pounds, the second highest amount on record.

For now, demand remains strong with two gilt auctions this week both recording the highest demand since 2020, and the second highest since 1997.


Stheeman said Britain was not alone with its high debt issuance and the job of selling it had been made easier by the increase in liquidity in the bond market since his early days in charge of the DMO.

Last month the Organisation for Economic Cooperation and Development said it expected total bond debt owed by its member governments to rise to $56 trillion this year from $54 trillion in 2023.

The United States will represent roughly half of this debt, twice its share in 2008, while the European Union will account for 20%, Japan for 16% and Britain for 6%, the OECD said.

“From the perspective of where I sit as a debt manager, you never want to be an outlier,” Stheeman said. “Debt to GDP ratios in developed western OECD economies have all been on an upward trajectory.”

Last month, Stheeman told Reuters the DMO was gradually lowering the proportion of very long-dated bonds – a hallmark of past issuance – due to a slow decline in demand from the domestic pension and life insurance industry.

He also welcomed growing appetite from international investors for British debt, rejecting comments by the government’s budget watchdog last year that this posed a risk.

In late 2023, foreign investors held just over 30% of British government bonds, up from 18% when Stheeman started in 2002, according to figures from Britain’s statistics office.

During the 2022 bond market crisis triggered by concern about then Prime Minister Liz Truss’ tax cut plans, it was funds servicing the British pension industry that stopped buying, not overseas investors, Stheeman said.

“A very significant part of the international investor base for gilts are reserve managers and official institutions. And reserve managers tend to be anything but flighty,” he said.