Rise in UK borrowing limits Hunt’s scope for tax cuts

by | Sep 21, 2023

(Sharecast News) – Britain’s budget deficit in August was slightly higher than expected, according to official data published on Thursday, meaning Finance Minister Jeremy Hunt will have less scope for tax cuts ahead of the General Election.
Public sector net borrowing excluding state-owned banks was £11.6bn in August, above consensus forecasts of £11.1bn, but below the Office for Budgetary Responsibility’s £13bn estimate.

The estimate of borrowing in the first four months of 2023/24 was revised up to £58.1bn, from £56.6bn. Net borrowing for the April-August period came in at £69.6bn, up £19.3bn year on year.

Analysts said GDP data and business survey results indicated that risks to growth forecasts were skewed to the downside.

In addition, debt interest payments were likely to exceed the OBR’s forecast by a larger margin over coming months, as more of the stock of debt is refinanced at higher interest rates than it anticipated.

“Full-year borrowing will total £113.2bn, a hefty £18.4bn below the OBR’s forecast, if this trend is maintained. We doubt, however, that the OBR will lower its full-year forecast quite that dramatically in the Autumn Statement on November 22,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“Households usually enjoy tax cuts in the run-ins to general elections, but we expect Hunt to make only token gestures in the Autumn Statement.”

“The ongoing increase in hospital waiting lists and the need to invest in public buildings points to little scope to fund tax cuts by squeezing spending. Note too that, as things stand, the government is committed to raising the state pension by 8.5% in April-in line with July’s rate of year-over-year growth in average weekly wages-which will cost about £2bn more than the OBR expected in 2024/25.”

Reporting by Frank Prenesti for Sharecast.com

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