Public borrowing far outstripped forecasts in August, official data showed on Wednesday, as the cost of servicing debt surged.
Public sector net borrowing excluding public sector banks (PSNB ex) was £11.8bn last month, the Office for National Statistics said. That was £2.6bn less than August 2021, but £6.5bn more than August 2019, pre-pandemic, when the UK borrowed £5.3bn.
It was also well above consensus, for around £8.8bn, and outstripped the £6bn forecast by the Office for Budget Responsibility in May.
While central government tax receipts were £69.6bn, largely in line with OBR forecasts, total government expenditure rose to £79.6bn.
In particular, debt interest payments were £8.2bn, much higher than the £4.9bn expected and up £1.5bn on August 2021. It was also the highest August figure since records began in 1997. “The volatility in interest payable is largely because of the effect of retail price index changes on index-linked gilts,” the ONS noted.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Public borrowing would total £99.5bn in 2022/23 -trivially above the OBR’s £99.1bn forecast – if the trend in public borrowing relative to OBR’s forecast in the first five months of this year is sustained. But the ultimate figure will be far higher, due to the new government’s fiscal activism.
“For now, we think that public borrowing will total about £125bn this year, and £110bn in 2023/24, but the outlook is very uncertain.”
Martin Beck, chief economist advisor to the EY Item Club, said: “Large favourable revisions to the historical data meant that over the first five months of the fiscal year, borrowing of £58.2bn was just £0.2bn above the OBR’s forecast.
“Such a small overshoot represents a decent outcome, given spending has been boosted by the first cost of living payments for those receiving means tested benefits.
“Borrowing will rise over the second half of the fiscal year, as the majority of support to help households and businesses pay their energy bills take effect.”
Victoria Scholar, head of investment at Interactive Investor, said: “Pressure mounts on Kwasi Kwarteng, as critics fear the new government’s planned expansional fiscalism through increased spending and tax cuts could increase public debts further, and exacerbate the economy’s inflationary pressures.”