The UK government sank deeper into debt in December as rising debt-interest payments and the cost of insulating consumers and businesses from the energy-price shock strained the public finances.

The budget deficit stood at a record £27.4 billion (€31.2 billion), almost triple the £10.7 billion shortfall a year earlier, the Office for National Statistics said Tuesday. Economists had forecast a reading of £17.3 billion.

The figures underscore risks to the UK economy as Prime Minister Rishi Sunak struggles to contain inflation near a four-decade high and strikes crippling the public services. A recession likely this year is expected to further dry up tax revenue and expand the deficit.

The deterioration dashes hopes that borrowing was on a downward path. The deficit in the first nine months of the year was £128.1 billion — up £5 billion from a year earlier — and officials expect 10s of billions to be added in the final three months of 2022-23.

Public sector debt was 2.2 trillion, or around 88 of gross domestic product. The deficit was driven by 17.3 billion pounds of debt interest costs, the second-highest monthly figure on record.

About a quarter of all UK government bonds are linked to the retail price index of inflation, which has surged to its highest level in decades. Almost £14 billion of those payments went directly to index-linked debt.

Inflation affects debt costs with a two-month lag, meaning December bore the brunt of a surge in the RPI in October to a peak of 14.2 per cent.

The cost of subsidising gas and electricity is also taking a toll, amounting to £7 billion in December alone.

Of that, £1.9 billion was a direct cost-of-living transfer to households and £5 billion was the money spent on an energy price-cap for households households. The OBR expects the latter to cost more than £40 billion by the end of the fiscal year.

“We are helping millions of families with the cost of living, but we must also ensure that our level of debt is fair for future generations, Chancellor of the Exchequer Jeremy Hunt said in a statement. “We have already taken some tough decisions to get debt falling, and it is vital that we stick to this plan.

The ONS said that the Bank of England’s gilt portfolio, bought under quantitative easing, was carrying a mark-to-market loss of £107 billion in December. - Bloomberg