UK public loan falls less than expected on Covid vaccination costs

UK public borrowing fell less than expected in October, reflecting higher interest payments on public debt and the cost of the Covid vaccination program even as tax collection rose on stronger economic activity.

Net public sector borrowing was estimated at £18.8 billion last month, £200 million less than in October 2020, data from the Office for National Statistics showed on Friday. This is much higher than the £13.8 billion forecast by economists polled by Reuters.

Martin Beck, chief economic adviser to the EY Item Club, says this is “surprisingly disappointing”. However, he added that net public sector borrowing remained “widespread” to hit the latest forecast of £183 billion for the 2021/22 financial year by the Office for Budget Responsibility, the governing body. UK fiscal monitor.

Loans remained high as central government agencies spent £78.8 billion, £1.5 billion more than in the same month last year. The increase reflects £1.2bn higher spending on procurement, which includes the cost of the vaccination programme, and an extra £3.8bn on interest payments.

Spending increases despite the end of costly programs, such as private income and job retention programs, that have helped protect the livelihoods of millions of workers during the pandemic. . Combined, they saved £1.5 billion compared to October last year.

The ONS said recent high interest payments were primarily the result of movements in the Retail Price Index that the index linked to the pegged index. On Wednesday, official data showed that in October, RPI inflation rose at its fastest pace since 1991.

The drop in borrowing is solely due to higher central government revenues, estimated at £65.5 billion, £3.8 billion more than October 2020, due to strong business activity. lead to a large increase in tax revenue. These include an additional £1.1 billion in “pay as you earn” income tax, reflecting a robust labor market.

% GDP column chart, financial years showing how UK public debt has reached levels last seen in the 1960s

This is the second-highest October loan since monthly records began in 1993, reflecting the massive impact of Covid-19 interventions on public finances. Public debt – which accumulates over time – accounts for about 95.1% of gross domestic product, a level not seen since the early 1960s.

“It is true that we are now strengthening public finances for future generations,” said Prime Minister Rishi Sunak. In his Budget last month, he introduced new fiscal rules aimed at keeping debt on a sustainable path.

However, Michal Stelmach, senior economist at consulting firm KPMG UK, said: “The UK is set to have the most accommodative fiscal policy of any G7 country by 2022. this could slow growth next year if the prime minister remains determined to meet fiscal targets. ”

Meanwhile, an early Christmas shopping activity helped UK retail sales grow again in October after nearly half a year of decline. On Friday, the ONS said monthly retail volume in the UK rose 0.8 per cent between September and October.

The number was stronger than economists polled for a 0.5 percent expansion and marked the first expansion in six months. With the exception of fuel, which fell sharply after the fuel crisis last month, retail sales surged 1.6 percent.

Volume line graph, 2018 = 100 shows Retail Sales returning to growth

The growth was supported by clothing stores, which recorded their highest sales since the start of the pandemic. Sales at department stores and toy stores also increased, pushing total sales to 5.8% from their levels in February 2020, before the pandemic.

The separate increase in consumer confidence in November, as measured by GfK, also released on Friday, suggests that sentiment has yet to be damaged by rising inflation.

“There are signs Christmas has come early for retailers with many shoppers not waiting until Halloween is over before arriving,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown. stores, spooked by warnings that some gifts and toys may be in short supply. This year.”

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