UK public sector borrowing rose last month as the government’s measures to shield households and businesses from soaring energy prices took effect.
Public sector net borrowing was £13.5bn in October, £4.4bn more than in the same month last year and the fourth highest October borrowing figure since monthly records began in 1993, according to data published by the Office for National Statistics on Tuesday.
Government measures including the energy bills support scheme, the energy price guarantee and the energy bill relief scheme, came into effect last month to help businesses and consumers with soaring energy costs.
Michal Stelmach, senior economist at KPMG UK, said that the rise “was largely driven by the energy price cap for households which came into force in October”.
The ONS figures showed that the government energy schemes increased public expenditure by £2.6bn in October. They contributed to boosting central government expenditure to £76.8bn in October, £6.5bn more than in the same month last year.
“October’s public finances figures showed that government borrowing is no longer coming in below last year’s monthly totals,” said Ruth Gregory, senior UK economist at Capital Economics.
October’s borrowing figure was much lower than the £22bn forecast by economists polled by Reuters, but the ONS has not yet included the costs of the energy bills relief scheme for businesses in October’s borrowing estimate due to a lack of data so far.
With the energy bill relief still not yet accounted for, “October’s borrowing figure is likely to be revised higher in future releases,” said Martin Beck, chief economic adviser to the EY ITEM Club.
He said that with the ONS describing its costing of the household schemes as an “initial indicative estimate”, it could be some time before the true borrowing picture emerged.
Social assistance payments were also £1bn higher than a year ago, reflecting the payment of some of the grants to help households with living costs announced in May.
Central government tax receipts were £51.7bn, £2.5bn more than in October last year. The strong labour market was another positive area, with £1.2bn additional revenues coming from pay-as-you-earn income tax.
Borrowing for the previous six months was revised down by £1.6bn to hit £84.4bn in the financial year to October 2022. This was £21.7bn less than in the same period last year.
However, with the rising costs of energy support and a weakening economic outlook that will lower tax receipts, the “year-over-year trend in borrowing will deteriorate over the coming months”, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Rising costs leave “the budget deficit now on a clearly deteriorating path and will only embolden the chancellor to keep a tight grip on the public finances”, said Gregory.
Public sector net borrowing — or borrowing accumulated over time — was 85.2 per cent of GDP in October. Last week, the Office for Budget Responsibility, the UK fiscal watchdog, forecast that UK public debt would soar to a 63-year high of 97.6 per cent of GDP in 2025-26 because of more than £100bn of additional fiscal support over the next two years to cushion the blow of higher energy prices.
UK chancellor Jeremy Hunt said: “It is right that the government increased borrowing to support millions of business and families throughout the pandemic, and the aftershocks of Putin’s illegal invasion of Ukraine.”
Despite the government’s support, the OBR is forecasting a recession that will last for more than a year and will wipe out the past eight years of growth in living standards.
Source: Economy - ft.com
