LONDON: UK government borrowing climbed to a record £240.9bil (US$323bil) in the first eight months of the fiscal year, reflecting the damage inflicted on an economy now at risk of falling back into recession.
In November, spending exceeded tax revenue by £31.6bil amid the escalating cost of supporting firms and households through the pandemic, office for national statistics figures published yesterday showed.
It leaves Britain facing its largest ever peacetime budget deficit.
Separate figures confirmed the economy rebounded strongly in the third quarter. But a contraction is expected this quarter, and hopes of recovery early next year are fading after the government tightened restrictions to combat a mutated coronavirus and several European countries banned entry from Britain.
Meanwhile, deadlocked talks over a Brexit trade deal are heading toward a Dec 31 cliff edge.
The multiple threats pile pressure on Chancellor of the Exchequer Rishi Sunak (pic) and Bank of England policy makers to step up fiscal and monetary support, with some analysts now predicting the economy will shrink in the first quarter too.
The potential hit means that the budget deficit in the fiscal year as a whole could be larger than the £394bil – 19% of GDP – predicted by the office for budget responsibility last month. That’s already the biggest among major industrial nations.
A worse-case virus scenario combined with a no-deal Brexit could see borrowing soar to almost £450bil in 2020-21, with net debt topping 125% of economic output in the following year, the fiscal watchdog warned.
Debt climbed to almost £2.1 trillion last month, or just under 100% of GDP, after a 30% surge in spending over the past year. The deficit measured on a cash rather than an accrued basis grew to almost £285bil since March.
The high level of spending, “is the right thing to do to protect lives and livelihoods during this acute phase of the crisis, ” Sunak said in a statement after the release.
“When our economy recovers, it’s right that we take the necessary steps to put the public finances on a more sustainable footing so we are able to respond to future crises in the way we have done this year.”
Sunak has signalled that tax increases are coming eventually, but he is under no immediate pressure as the Bank of England’s vast bond-buying programme is keeping the cost of borrowing close to record lows.
In the short term, further fiscal stimulus appears more likely despite the roll-out of a vaccine programme, with the chancellor last week announcing that wage support for furloughed workers is being extended by a month to the end of April.
The economy grew 16% in the third quarter, slightly more than previously estimated, recovering from a second quarter when the economy was placed under a near-total lockdown.
Restrictions were re-imposed this quarter, and GDP is on course to contract by around 11% in 2020, the most since the Great Frost of 1709.
Britons saved less of the incomes in the third quarter as non-essential stories reopened, with the ratio falling to 16.9% from an unprecedented 27.4% in the previous three months.
Households have amassed large unspent savings this year, which could help support the economy next year.
Government support underpinned real household incomes, which rose 4.9%.
Separate figures showed the current-account deficit widened to £15.7bil, or 2.9% of GDP, from the second quarter. — Bloomberg