Britain’s public borrowing hits record $26.7 billion in November - GulfToday

Britain’s public borrowing hits record $26.7 billion in November

Women sit with shopping trolleys at a bus stop in Chester, Britain. Reuters

Women sit with shopping trolleys at a bus stop in Chester, Britain. Reuters

British public borrowing unexpectedly jumped last month to hit its highest for any November on record, reflecting the mounting cost of energy subsidies, debt interest and the reversal of an increase in payroll taxes, official figures showed on Wednesday.

Borrowing rose to 22.0 billion pounds ($26.7 billion) from 8.1 billion pounds a year earlier - before Britain was hit by surging natural gas prices that have forced the government to subsidise heating and electricity costs for millions of households and businesses.

Economists polled by Reuters had forecast a much smaller increase to 13.0 billion pounds.

The news comes as the government faces a wave of strikes in the public sector - including nurses and ambulance drivers - as well as in the rail industry which relies heavily on subsidies.

Responding to the data, finance minister Jeremy Hunt repeated his position that he had no wish to change his spending plans. These allow no scope for public sector pay to keep up with inflation, which hit a 41-year high in October.

“We have a clear plan to help halve inflation next year, but that requires some tough decisions to put our public finances back on a sustainable footing,” Hunt said.

Last month the British government’s Office for Budget Responsibility (OBR) revised up its forecast for borrowing in 2022/23 to 177.0 billion pounds, or 7.1 per cent of gross domestic product, from an earlier estimate of 99.1 billion pounds.

Borrowing had looked set to rise even higher under Hunt’s predecessor, Kwasi Kwarteng, who was forced to quit in October along with then-prime minister Liz Truss after markets rejected their ‘Plan for Growth’ and pushed sterling to a record low.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said Wednesday’s data appeared roughly in line with the new OBR forecasts, but he was less confident that borrowing would fall as fast in future years as the OBR predicts.

“The rolling nature of the new fiscal targets, and building demographic pressure, suggest that plans for very modest real-terms increases in departments’ budgets in the mid-2020s will not be followed,” he said.

Instead, borrowing was only likely to fall to around 4 per cent of GDP by the mid-2020s, above the 3 per cent ceiling set by the government, Tombs said.

Public debt on the government’s preferred measure - which excludes public-sector banks and lending by the Bank of England - rose to 86.7 per cent of GDP in November or 2.176 trillion pounds, up from 85.2 per cent or 2.024 trillion pounds a year ago.

Borrowing so far this financial year is 6.7 per cent lower than between April and November 2021 at 105.4 billion pounds, the Office for National Statistics (ONS) said, but that improvement is rapidly going into reverse.

The ONS estimated that new energy support measures cost around 7 billion pounds this month, while debt interest payments - which are partially linked to the soaring rate of inflation - jumped by 2.4 billion pounds from a year ago to 7.4 billion.

By contrast, National Insurance contributions (NICs) - one of Britain’s three main sources of tax revenue alongside income tax and value-added tax - grew just 1.3 per cent year-on-year in November, much less than the 14.6 per cent rise for the fiscal year to date.

November marked the reversal of a rise in NICs which took place in April when Rishi Sunak - now prime minister - was finance minister. The increase was unpopular with Conservative Party members and was a key reason why they picked Truss rather than Sunak to succeed Boris Johnson as prime minister.

Kwarteng ordered the increase to be reversed after Truss appointed him finance minister, and it was one of only a few of his tax cuts which Hunt retained.

British retailers reported a surprise pick-up in demand in December, but expect spending to slide again in 2023 as shoppers are pressured by the rising cost of living, a survey from the Confederation of British Industry showed on Wednesday.

The CBI’s distributive trades index, which measures the difference in the percentage of retailers reporting annual rises and falls in sales volumes, rose to +11 in December from -19 in November. This was well above both the -21 forecast by retailers last month and the -23 median in a Reuters poll of economists.

However, for January retailers see the sales balance falling back to -17. “Any festive cheer is expected to be short-lived. Retailers are bracing themselves for the chill winds that will blow through the sector this winter, with consumer spending set to be hit hard by high inflation,” CBI economist Martin Sartorius said. A separate CBI measure, which asks retailers to compare sales with what is normal for the time of year, showed readings around average for November, December and January.

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