UK public sector borrowing increased than anticipated in June

Unlock the Editor’s Digest at no cost

Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.

UK public sector borrowing was increased than anticipated in June, in response to official statistics that show the dimensions of the problem dealing with new chancellor Rachel Reeves to revive the well being of the nation’s funds.

Borrowing — the distinction between public sector spending and earnings — was £14.5bn in June, the Workplace for Nationwide Statistics mentioned on Friday. That was £3.2bn lower than in June 2023, and the bottom June borrowing since 2019, however increased than the £11.6bn forecast by the Workplace for Finances Accountability.

The year-on-year drop was fuelled by increased tax revenues and decrease spending from debt curiosity funds and the ending of vitality help schemes.

The figures spotlight the challenges for the brand new Labour authorities of funding its agenda towards the backdrop of excessive borrowing, and got here as separate official information confirmed retail gross sales contracted greater than anticipated final month.

Rob Wooden, an economist on the consultancy Pantheon Macroeconomics, mentioned: “The brand new chancellor Rachel Reeves didn’t get a heat welcome from the federal government borrowing figures.”

He added: “Because it stands Reeves will nonetheless doubtless have to lift taxes within the medium time period to cowl the necessity to spend extra on public companies.”

Public debt, or borrowing amassed over time, was 99.5 per cent of GDP, remaining at ranges final seen within the early Sixties, reflecting increased spending throughout the pandemic. 

Darren Jones, chief secretary to the Treasury, mentioned: “Immediately’s figures are a transparent reminder that this authorities has inherited the worst financial circumstances for the reason that second world battle, however we’re losing no time to repair it.”

He added: “Fixing the economic system’s foundations and restoring stability is the one method we are able to create progress and put extra money again into individuals’s pockets throughout the nation.”

Within the first three months of the fiscal 12 months to June, borrowing was £49.8bn, £1.1bn lower than in the identical interval final 12 months, however £3.2bn extra the £46.6bn forecast by the OBR.

The Labour authorities has dominated out will increase within the charges of earnings tax, company tax and VAT, and plans to give attention to financial progress, which it’s banking on to generate extra income for the exchequer and scale back stress on the general public funds.

Dennis Tatarkov, economist on the consultancy KPMG UK, mentioned: “A mixture of excessive ranges of spending and weak progress prospects will current uncomfortable decisions — deciding between much more borrowing or considerably elevating taxes if spending ranges are to be maintained.”

Sandra Horsfield, economist at Investec, mentioned the largest problem for the brand new authorities shall be to steer the OBR that Labour’s deliberate insurance policies will convey concerning the desired change in gear for GDP progress longer-term. “If that’s the case, this could increase the scope to fund the specified enhancements in public companies.”

On Friday separate official information confirmed British retail gross sales contracting greater than anticipated final month.

The amount of products purchased in Nice Britain fell 1.2 per cent between Could and June, following a 2.9 per cent enlargement within the earlier month, the ONS mentioned.

This was a bigger fall than the 0.4 per cent contraction forecast by economists polled by Reuters, with the largest drops registered in malls, clothes outlets and furnishings shops.

The ONS mentioned retailers instructed that election uncertainty, poor climate and low footfall affected gross sales.

In June, gross sales have been 1.3 per cent beneath their pre-pandemic stage in February 2020, even when customers spent practically 20 per cent extra, reflecting the impression of excessive inflation on family funds.

Separate information revealed on Friday by the analysis firm GfK confirmed client confidence rising just one level to minus 13 in July, the very best since August 2021.

Joe Staton, shopper technique director at GfK, mentioned: “July’s client confidence ballot suggests a word of warning as individuals wait to see precisely how the UK’s new authorities will have an effect on the broader economic system and their private funds.”