The recent data released by the Office for National Statistics (ONS) has brought some unexpected good news for the UK government. According to the ONS, government borrowing in the last month was lower than anticipated, providing a potential boost for Chancellor of the Exchequer Jeremy Hunt as he prepares for the upcoming autumn statement.
In specific terms, public sector net borrowing stood at £14.3 billion, which was £1.6 billion less than the same period last year. This positive outcome was largely due to an increase in tax revenues driven by inflation. Despite this achievement, it is crucial to note that this figure still ranks as the sixth-highest borrowing in the month of September, indicating the ongoing financial challenges faced by the government.
However, the actual borrowing was notably lower than the predictions made by economists, standing significantly below the £18.3 billion forecasted and even further from the Office for Budget Responsibility’s (OBR) estimate of £20.5 billion earlier this year.
Additionally, the ONS shared that the net debt reached £2.599 trillion at the end of September, equivalent to approximately 97.8% of the UK’s GDP. This number represents a 2.1 percentage point increase compared to the same period in the previous year.
Chancellor Jeremy Hunt acknowledged the necessity of borrowing during the pandemic to safeguard lives and livelihoods. However, he highlighted the challenges posed by external factors such as Putin’s invasion, leading to heightened inflation and interest rates. Hunt emphasized the unsustainability of the current situation, citing that the government spent double the amount on debt interest last year compared to the previous year. He stressed the need to reduce public sector waste and decrease the overall debt burden, allowing public service providers to focus on their core responsibilities, such as education, safety, and healthcare.
Looking ahead, as the Chancellor prepares to deliver the autumn statement, there is speculation about potential tax cuts or giveaways. Hunt has hinted that significant tax cuts are improbable, but experts like Ashley Webb, a UK economist at Capital Economics, suggest that there might be some room for pre-election giveaways in the March budget. However, any such measures would likely need to be modest, considering the looming challenges related to higher interest rates and weaker GDP growth.
In summary, the recent data indicating lower-than-expected government borrowing brings a momentary sigh of relief. However, it underscores the importance of careful financial management and strategic planning to navigate the uncertainties posed by inflation, geopolitical events, and their impact on the economy.