Home Borrower Britain’s borrowing rises as PM candidates pledge more aid

Britain’s borrowing rises as PM candidates pledge more aid

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  • UK borrows 4.9bn stg in July vs. 0.2bn forecast by OBR
  • Leading candidate to succeed Prime Minister Johnson wants tax cuts
  • Soaring inflation raises cost of debt, calls for household help

LONDON, Aug 19 (Reuters) – Britain borrowed more than expected in July, official data showed, underscoring the challenge facing the country’s next prime minister over how to provide more support to consumers hit by soaring energy costs.

The Office for National Statistics said on Friday that public sector borrowing excluding public banks stood at 4.944 billion pounds ($5.89 billion).

That was well above the most recent forecast from the government’s fiscal watchdog, the Office for Budget Responsibility, which said in March it expected a deficit of just 0.2 billion pounds in course of the month.

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A Reuters poll of economists had indicated a borrowing of £2.8bn for July, which is usually a month when income tax payments hit public coffers.

In July 2019, before the COVID-19 pandemic caused a historic spike in government borrowing, public finances were in surplus by £0.9 billion.

Michal Stelmach, senior economist at KPMG, said the figures showed the tough choices ahead for anyone moving into Downing Street next month.

“The balance of risks to public finances has clearly tilted to the downside,” he said. “The cost-of-living crisis will likely require additional support for households, while a slowing economy will put downward pressure on revenues, making fiscal targets increasingly unachievable.”

UK government bond prices – which were hit hard by stronger-than-expected inflation data on Wednesday – fell sharply again on Friday, with two-year borrowing costs rising 0.12 percentage points to reach their highest level since November 2008.

The head of the Tory leadership race, Foreign Secretary Liz Truss, said she would cut taxes.

The other candidate, former finance minister Rishi Sunak, says it risks fueling inflation. He prefers more direct and targeted support.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, estimated that if Truss wins, Britain’s budget deficit is expected to reach around 170 billion pounds in the current financial year, around three times its pre-pandemic size. .

In the first four months of the 2022/23 financial year from April, Britain borrowed £55.0bn, down £12.1bn from the same time last year last, but £32.6 billion more than between April and July 2019.

It was also around £3 billion more than the OBR forecast in March.

The gap was narrowed by a £5.0 billion downward revision to the deficit between April and June.

In addition to hitting households, rising inflation is increasing government debt interest bills. Britain paid interest on its £5.8bn debt in July, up 63% from July last year.

ONS data showed that overall central government spending in July rose by 4.6% compared to the same month last year, while revenue rose by 8.4%. Over the April-July period, expenditure increased by 1.5% while revenue increased by 12.7%.

($1 = 0.8398 pounds)

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Reporting by William Schomberg; Editing by David Milliken and Alexander Smith

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