UK public finances under fresh strain as borrowing climbs by more than expected in September The UK’s public finances are coming under renewed strain after borrowing climbed more than expected in September, making it harder to prepare for next week’s Budget. The latest data shows the mounting cost of servicing the nation’s debt, and the difficulties that Chancellor John Healey faces when setting out his tax and expenditure plans next week.
The Office for National Statistics (ONS) said that in September, the public sector borrowed 24.5bn, an increase of 1.8bn compared with the same month a year earlier. That was also 1.9bn above the prediction of the independent Office for Budget Responsibility (OBR) which gauges the government’s economic and fiscal forecasts.
The spending pledges reveal ahead of the October 28 Budget that public finances will feature prominently when discussing taxation, public services and economic support.
One of the reasons for the rise was the cost of servicing government debt. Central government debt interest paid was 10.9 billion in September, the highest for the month of September since the monthly records began in 1997.
The figure was 1.6 billion higher than the same time a year earlier and 2 billion above the official forecast. Payments on inflation-linked government bonds which are affected by movements in the Retail Prices Index played a major part in the rise.
So, in other words, faster inflation could bring higher government borrowing requirements, even if there is no increase in new spending schemes. The latest data also revealed that government expenditure grew more quickly than total receipts during September, contributing to the deficit for the month.
UK’s public sector net debt hits record high public sector net debt in the UK reached a provisional 3.005trn at the end of September, marking the first time it has surpassed 3trn. This was 91.7bn more than the same period last year.
But debt as a share of the economy was 94% of gross domestic product, a little below what it was a year ago. Why is this important? Because the ability to pay off public debt hinges not just on the amount of debt, but on what the economy can earn and this way support.
In the first six months of the 202627 financial year, public sector net borrowing reached 97.8 billion. This amount was 4.4 billion less than in the same period the previous year, but it was 6 billion higher than the Office for Budget Responsibility had forecast.
The numbers demonstrate that borrowing alone does not allow a clear assessment of the government’s financial health when compared to the previous year. Even if the deficit is lowering, that reduction can disappoint if, for example spending interest payments or economic circumstances diverge from predictions.
An Institute for Fiscal Studies analysis has already pointed out that increased government borrowing costs and inflation could shrink the fiscal headroom to meet the rules. Its analysis said there was “a high degree of uncertainty” about future prices, interest rates, economic growth and future spending.
Economic obstacles are adding more trouble. UK inflation rose to 3.5% in September higher than forecast, this was reported on 21 October. This was driven partly by higher energy prices, which means it puts even more stress on the budgets of families and governments.
