In an interview with the Financial Times on Friday, Sunak said he will “level with people” about the challenge when he delivers the budget on Wednesday.
The extra funding required for government schemes to support businesses hit by lockdown measures, combined with reduced tax revenues and a fall in gross domestic product (GDP), have all helped push Britain’s public sector net debt to a new high.
As the UK has “far more debt” than before, it is “exposed” to changes in interest rates, said Sunak.
If there is a rise of 1 percentage point across all interest rates, the government’s cost of servicing its debt would increase by £25 billion ($35 billion) a year, he said.
The government has already spent more than £280 billion ($390 billion) in COVID-19 relief and tax cuts this year, and Sunak’s March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown.
“We went big, we went early, but there is more to come and there will be more to come in the budget. But there is a challenge and I want to level with people about the challenge,” he said.
Sunak told the FT that he would launch a new fast-track visa scheme to help Britain’s fastest-growing companies recruit highly skilled workers.
He will announce on Wednesday a new mortgage scheme targeted at people with small deposits, the Treasury announced late on Friday.
The government will also launch a new task force to crack-down on fraudsters exploiting the government’s COVID-19 support schemes.
Under the government plan, COVID-19 restrictions on social contact will not be completely removed until June 21 at the earliest.
The COVID Recovery Group (CRG), a group of lockdown-sceptical Conservative MPs who had previously demanded the government lift all restrictions by the end of April, expressed disappointment at the plan.
Steve Baker, deputy chairman of the group, said on Twitter the pace of the roadmap was “a hammer blow to aviation, pubs, restaurants, hotels, gyms and pools, the arts and entertainment.”
Reuters contributed to this report.