U.K. Budget Deficit Halves Despite Rising Debt Costs
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Loading... - Phoebe Edwards
- 26 Apr 2022
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U.K. government borrowing halved in the last fiscal year but surging inflation remains the main threat to the outlook for the public finances, official figures showed.
The budget deficit for March came in just below expectations at 18.1 billion pounds ($23 billion), leaving the shortfall for 2021-22 as a whole at 151.8 billion pounds, the Office for National Statistics said Tuesday.
That’s the equivalent of 6.4% of GDP, down from a World War II high of 14.8% in 2020-21 when the coronavirus pandemic was raging. It was the third-highest financial year borrowing since records began in 1947, but less than half of the 317.6 billion pounds borrowed in the same period last year
The improvement reflected the phasing out of pandemic-era spending programs such as furlough and an economic recovery that has delivered far more tax revenue than originally forecast.
However, rising inflation is pushing up debt costs and the bill is set to increase further.
The cost of servicing gilts tied to the retail prices index – around a quarter of all government bonds – is a potential headache for Chancellor Rishi Sunak as he tries to cut the debt burden and eliminate borrowing for day-to-day spending by the middle of the decade.
RPI inflation, already at a 31-year high of 9%, is forecast to climb into double digits this quarter with each 1 percentage-point increase adding more than 5 billion pounds to debt costs. Bank of England interest-rate increases to combat inflation will deliver an even heavier blow by raising the cost of financing gilts acquired by the central bank through its quantitative-easing program.
Debt interest costs last year totaled 69.9 billion pounds, up 77% from a year earlier. In March alone, the interest bill was 2.9 billion pounds
Government borrowing in 2021-22 was above the 128 billion pounds the OBR forecast at the Spring statement in March. The difference reflected the OBR’s prediction that the government would a significantly underspend on investment. Read More…
