Huge UK government borrowing falls in June, cost of debt rises

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LONDON, July 21 (Reuters) – UK government borrowing was nearly a fifth lower than a year earlier last month, when the economy was hit hard by the coronavirus pandemic, but the rise in inflation has put upward pressure on the cost of debt.

Net borrowing by the public sector, excluding public sector banks, fell to 22.8 billion pounds ($ 31.0 billion) in June, still the second highest June figure on record. Economists polled by Reuters were forecasting a drop to 21.6 billion pounds.

Mirroring UK Finance Minister Rishi Sunak’s increase in borrowing to cushion the pandemic’s hit, data showed Britain’s budget deficit jumped to 14.2% of gross domestic product over the course of the year. fiscal year until the end of March 2021, its highest share of GDP since World War II.

“We still expect borrowing to be lower than the OBR’s latest forecast for this year. But we’re not out of the woods just yet, with the recent surge in COVID-19 cases putting parts of the economy at risk. in danger of further restrictions later in the year, “said KPMG economist Michal Stelmach.

The Institute for Fiscal Studies, a think tank, said in a report with economists at Citi that borrowing in fiscal year 2021/22 would drop to 9.3 percent of GDP. That’s £ 30 billion less than government forecasters expected in March, but it would still be the third highest on record. Read more

The Office for National Statistics said June debt servicing costs – which include an increase in inflation in future cash values ​​of indexed gilts as well as actual interest payments – hit a record 8 , 7 billion pounds.

A rise in the retail price inflation rate was largely to blame, he added.

However, debt servicing costs as a percentage of GDP remain low by historical standards, and most economists argue that the pace of economic recovery will be the key factor in improving public finances.

“The economy can do more work by ‘fixing’ public finances than a fiscal tightening,” said Ruth Gregory of Capital Economics.

Government borrowing for the first three months of the fiscal year totaled £ 69.5 billion, down more than 40% from the three months to June 2020, when Britain recorded its most borrowing. cash-heavy due to its surge in COVID spending.

But public debt as a percentage of GDP, excluding public sector banks, was £ 2.218 trillion or 99.7% of GDP in June, its highest level since March 1961.

“It is … right that we ensure that the debt remains under control in the medium term, and that is why I made some difficult choices during the last budget to put the public finances on a sustainable path,” said said Finance Minister Rishi Sunak.

Sunak’s support for workers on leave and tax relief on real estate purchases are being phased out, while a temporary increase in the main benefit for the unemployed and low-income will end on October 1. Foreign aid spending has also been cut.

Sunak is due to conduct a public expenditure review before the end of the year.

The IFS think tank said that while the short-term outlook for public finances is better than in March – giving the possibility of one-off giveaways – the long-term outlook pointed to spending cuts for some ministries unless taxes don’t go up.

($ 1 = 0.7354 pounds)

Reporting by David Milliken and William Schomberg Editing by Peter Graff

Our Standards: Thomson Reuters Trust Principles.

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