Energy subsidies lift UK borrowing to February high

Public borrowing in February rose to a excessive for the month as the federal government paid out vital subsidies to cap power payments for households and companies, official figures present.

Web borrowing hit £16.7 billion final month, up by £9.7 billion in contrast with the identical month in 2022, and the best degree of February borrowing since information started in 1993, based on the Workplace for Nationwide Statistics.

The principle cause for the rise was a £6.4 billion rise in authorities spending on subsidies such because the power worth assure, which caps the typical family power invoice at £2,500 a yr.

Public sector web debt hit 99.2 per cent of GDP final month, pushing the debt-to-GDP ratio to ranges final seen when Britain was rebuilding after the Second World Conflict within the early Nineteen Sixties.

The federal government borrowed a complete of £132.2 billion within the monetary yr to February to document the third highest cumulative borrowing over that interval since month-to-month information started 30 years in the past. The determine is £15.5 billion increased than in the identical interval final yr.

The price of servicing authorities debt, which is affected by the retail costs index measure of inflation, fell barely to £6.9 billion, from £8.2 billion in the identical month final yr, however stays excessive by historic ranges. The RPI has been in double digits since final April.

Jeremy Hunt, the chancellor, stated: “Borrowing remains to be excessive as a result of we’re decided to help households and companies with rising costs and are spending about £1500 per family to pay just below half of individuals’s power payments this winter.

“What’s going to carry these prices proper down is decrease inflation, which is why it stays certainly one of our prime priorities to halve it this yr, alongside rising our financial system and decreasing debt.”

Michal Stelmach, senior economist at KPMG UK, stated: “We count on the outlook for public funds to enhance over the approaching months because of an anticipated £40 billion fall in power and cost-of-living subsidies in 2023-24, in addition to the current fall in authorities bond yields and RPI inflation which collectively decide the price of servicing debt.

He added that KPMG’s forecast for development is decrease than the OBR’s, with anticipated GDP 3 per cent decrease by 2027-28. This might “simply wipe the present headroom of £6.5 billion to satisfy the fiscal rule of falling debt.”

The chancellor introduced in his Funds final week that he would meet his fiscal goal to get debt falling as a share of GDP by 2028 with the smallest margin for error any chancellor has had since 2010, when the Workplace for Funds Duty was established. The OBR is the federal government’s tax and spending watchdog.

Ruth Gregory, deputy chief UK economist on the Capital Economics consultancy, stated the large danger for the federal government is {that a} “additional escalation within the banking disaster causes a deterioration within the fiscal outlook because the hit to the general public funds from weaker financial development is just partially cushioned by decrease gilt yields”.

She stated cumulative borrowing for the present monetary yr is ready to come back in nicely under the extent forecast by the OBR final week. This and the inclusion of coverage reforms to pupil loans within the nationwide statistics from subsequent month will push borrowing down by billions.

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