LONDON — 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 rocketing energy costs.
The Office for National Statistics said on Friday that public sector borrowing excluding state-owned banks stood at 4.944 billion pounds ($5.89 billion).
That was far above the most recent forecast by 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 the month.
A Reuters poll of economists had pointed to borrowing of 2.8 billion pounds for July, which is typically a month when income tax payments flow into the public coffers.
In July 2019, before the COVID-19 pandemic which prompted an historic surge in government borrowing, the public finances were in surplus by 0.9 billion pounds.
Michal Stelmach, senior economist at KPMG, said the figures showed the tough choices ahead for whoever moves into Downing Street next month.
“The balance of risks to public finances has clearly shifted to the downside,” he said. “The cost-of-living crisis will likely require further support to households, while a slowing economy will put downward pressure on receipts, making the fiscal targets ever less achievable.”
British government bond prices – which took a big knock from higher-than-expected inflation data on Wednesday – fell sharply again on Friday, with two-year borrowing costs rising by 0.12 percentage points to their highest since November 2008.
The front-runner in the Conservative Party leadership race, Foreign Secretary Liz Truss, has said she will cut taxes.
The other contender, former finance minister Rishi Sunak, says that risks fueling inflation. He prefers more direct and more targeted support.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, estimated that if Truss wins, Britain’s budget deficit is likely to hit about 170 billion pounds in the current financial year, about three times its size before the pandemic.
Over the first four months of the 2022/23 financial year starting in April, Britain borrowed 55.0 billion pounds, 12.1 billion pounds less than over the same period last year but 32.6 billion pounds more than between April and July 2019.
It was also about 3 billion pounds more than expected by the OBR in March.
The gap was narrowed by a 5.0 billion-pound downward revision to the shortfall between April and June.
As well as hitting households, the rise in inflation is adding to the government’s debt interest bills. Britain paid debt interest of 5.8 billion pounds in July, up 63% from July last year.
The ONS data showed overall central government spending in July rose by 4.6% compared with the same month last year while receipts rose 8.4%. Over the April-July period, spending was 1.5% higher while receipts were up by 12.7%. ($1 = 0.8398 pounds) (Reporting by William Schomberg; Editing by David Milliken and Alexander Smith)