LONDON: British public borrowing declined by less than expected in August, according to government figures, highlighting the hefty ongoing costs of the Covid-19 pandemic and a rise in debt interest payments as inflation picked up.
Public sector net borrowing, excluding state-controlled banks, fell to £20.5bil (US$28bil or RM118bil) in August, down 21% from August a year earlier, but well above economists’ average £15.6bil (RM90bil) forecast in a Reuters poll.
British government borrowing soared last financial year because of heavy spending due to Covid-19, hitting its highest since World War II at 15.5% of gross domestic product, up from an earlier estimate of 14.2%.
The Office for National Statistics said this upward revision reflected higher estimates for the cost of a Covid-19 loan guarantee scheme and public-sector pensions.
Finance minister Rishi Sunak will unveil new budget and growth forecasts on Oct 27, as well as new multi-year spending limits for individual government departments and potentially some longer-term fiscal goals.
Spending has fallen sharply during the current financial year, due in large part to a big drop in the number of people receiving job furlough payments and similar support for the self-employed. Borrowing for the first five months of the 2021/22 financial year totalled £93.8bil (RM538bil), down by almost half on the same period a year earlier.
A big drop in furlough payments – which stop this month – and similar reduction in support for the self-employed was the biggest cause of the fall in spending. But higher interest payments on inflation-linked government bonds had pushed up debt servicing costs in August and were likely to increase as inflation rose further in months to come, said Samuel Tombs, economist at Pantheon Macroeconomics.Debt costs last month added up to £6.3bil (RM36.14bil), twice their level a year ago. Measured as a share of gross domestic product (GDP), debt interest costs still remain low by historic standards.
Public debt as a share of gross domestic product rose to £2.023 trillion (RM11.58 trillion) or 97.6% of GDP in August, the highest ratio since March 1963. The government announced it would increase the rate of payroll taxes paid by employers and employees by 1.25 percentage points each, to fund greater health spending and long-term social care costs. — Reuters