Interest payments on the ballooning national debt will be almost £70billion lower than previously expected over the next five years.
The debt – less than £500billion in 2005 – is forecast to rise from £1.8 trillion last year to £2.8 trillion in 2025/26 as the cost of Covid mounts.
But the Office for Budget Responsibility (OBR) now expects the cost of serving the debt to tumble thanks to rock-bottom interest rates, lower inflation and more quantitative easing.
The national debt – less than £500bn in 2005 – is forecast to rise from £1.8trillion last year to £2.8trillion in 2025-26 as the cost of Covid mounts
Instead of paying £34.5billion of interest this year, as the OBR forecast in March, the Government is set to pay £23.5billion.
Next year, payments are set to be £20.2billion lower than expected, at £17.6billion. And in 2022/23 they are down £16.7billion, at £21.2billion.
Economists welcomed the revisions but warned that the UK is vulnerable to a sharp increase in short-term interest rates as the maturity of the UK’s debt has shortened.
Richard Hughes, OBR chairman, said: ‘While the interest rates we are paying are one-sixth what they were at the turn of this century, there are no guarantees they will remain so low.
‘History warns the interest rates can rise much faster than debt can fall.
‘And the shortening of the effective maturity of our debts has left public finances more exposed to a sudden rebound in interest rates.’