UK forced to borrow more than expected as inflation soars | Budget deficit

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The UK government was forced to borrow more than expected in August as soaring inflation pushed up interest payments on debt.

The National Statistics Office said the government’s budget deficit – the gap between spending and income – fell to £ 20.5bn in August, from around £ 26bn in the same month a year earlier, so as the UK economy recovers from the lockdown.

However, the latest snapshot showed that the gains from a rebound in tax revenues and lower government spending were offset by inflation causing interest payments on the national debt to increase by 84% compared to the same. month a year ago.

City economists had forecast a borrowing amount of around £ 15.6 billion in August.

Although interest payments on debt were lower than in July, when service costs hit the highest monthly level on record, the latest snapshot showed interest paid on government bonds increased. rose £ 2.9bn from the same month a year ago to £ 6.3bn. in August.

Reflecting the increase in government borrowing during the pandemic, public sector net debt reached £ 2.2 billion at the end of August, or around 97.6% of GDP, the highest ratio since March 1963.

The ONS also revised upward its estimate of borrowing in the fiscal year to end-March 2021 by £ 27.1 billion, bringing the deficit to £ 325.1 billion for the year in which Covid-19 triggered the worst fallout for public finances since the second world. war.

He said this was mainly due to the inclusion of expected losses on government-backed Covid emergency loans to businesses worth £ 20.9 billion, which he first included in public finance estimates. Despite making up around a quarter of total emergency business loans of £ 80 billion, the estimated losses are lower than the previous forecast of £ 27 billion made by the Office for Budget Responsibility.

The numbers come as Rishi Sunak prepares to cut back on Covid emergency support programs and expose the government’s post-pandemic tax and spending plans during next month’s fall budget and spending review over three years.

Responding to the latest figures, the Chancellor said the government would continue to support businesses and workers in reconstruction work after the pandemic. “At the same time, we are determined to get our public finances back on track – which is why we have defined the targeted and responsible actions we are taking to keep the debt under control,” he said.

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Britain’s economic recovery from the lockdown has weakened in recent months as severe labor and supply shortages weigh on growth. Inflation has also hit its highest level in a decade, largely due to temporary factors as the economy recovers from the pandemic.

The ONS said recent high levels of interest payments on debt were mainly due to movements in the retail price index (RPI) measure of inflation, to which certain government bonds are attached. The RPI jumped to 4.8% in August, from 0.5% a year earlier to hit the highest level in a decade.

Economists have said that despite the rise in interest payments, borrowing in FY 2021-22 remains on track to reach around £ 25bn less than expected in March. Martin Beck, Senior Economic Advisor for the EY Item Club, said: “This reflects the impact of a stronger recovery, which has increased revenues and reduced spending on government support programs.”


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