By William Schomberg
LONDON (Reuters) -Britain borrowed more than expected in June as high inflation pushed up the government’s debt costs, according to data that is likely to add to speculation about the need for fresh tax increases by finance minister Rachel Reeves.
Public sector net borrowing totalled 20.7 billion pounds ($27.88 billion) last month, the data showed, higher than a median forecast of 16.5 billion pounds in a Reuters poll of economists, and the second highest for June on record.
The borrowing was also higher than expected by Britain’s budget watchdog, the Office for Budget Responsibility, which forecast borrowing of 17.1 billion pounds in June when it published its outlook in March.
That was before a strong inflation reading in April had the effect of pushing up inflation-linked government bond payments.
Tuesday’s data from the Office for National Statistics showed interest payable on central government debt was 16.4 billion pounds in June, the third highest since monthly records began in 1997.
Reeves is expected to raise taxes in a budget statement towards the end of 2025 in order to remain on track to meet her targets for fixing the public finances.
That job was made harder by the government dropping its plans to save money from the welfare bill due to stiff opposition from within Prime Minister Keir Starmer’s Labour Party. Slow economic growth is also adding to Reeves’ problems.
“Recent U-turns on welfare and persistent growth headwinds could open a gap against fiscal targets, which could require further tax rises or spending cuts in the Autumn Budget,” Dennis Tatarkov, senior economist at KPMG UK, said.
Darren Jones, a deputy to Reeves at the Treasury, said the government remained committed to its fiscal rules, chief among them a promise to cover day-to-day spending with tax revenues by the end of the decade.
Over the first three months of the fiscal year which began in April, Britain borrowed 57.8 billion pounds, 15% more than in the same period last year and the third-highest April-to-June deficit on record.
However, the figure was in line with the three-month forecast by the Office for Budget Responsibility, offering some comfort to Reeves.
The public finances have been bolstered by her increase in social security contributions paid by employers. Compulsory social contributions – mostly National Insurance Contributions – jumped by 18% in the April-to-June period to 48 billion pounds.
($1 = 0.7425 pounds)
(Writing by William Schomberg; Editing by Kate Holton and Andrew Heavens)
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