UK public borrowing falls as economy rebounds

UK public finances updates

Sign up to myFT Daily Digest to be the first to know about UK public finances news.

UK public borrowing fell last month as the economy rebounded, but rising inflation pushed up the cost of public debt.

Public sector net borrowing was £20.5bn in August, £5.5bn less than in the same month last year, data by the Office for National Statistics showed on Tuesday.

That was only marginally lower than the £21.6bn forecast by the Office for Budget Responsibility, the country’s fiscal watchdog, and it overshot the £15.6bn forecast by economists polled by Reuters.

Interest payments on public debt rose to £6.3bn, which was £2.9bn higher than in the same month last year. It was also much higher than the £1.6bn forecast by the OBR following a rapid rise in retail price inflation, to which debt payments are linked.

UK chancellor Rishi Sunak is planning to use next month’s Budget to set out new rules to rein in government borrowing, as the Treasury fears that higher inflation and any rise in interest rates would make it difficult to reduce public debt.

In August, central government receipts were £61.2bn, which was £5.3bn more than in the same month last year as tax payments rose.

At the same time, the central government spent £79.6bn, £1bn less than in August last year, reflecting the lower government support to businesses and personal incomes.

However, the country still registered the second-highest August borrowing since monthly records began in 1993, pushed up by over 50 schemes which have been launched to support individuals and businesses during the pandemic.

Public sector net debt, or the borrowing accumulated over time, was 97.6 per cent of GDP, the highest ratio since the early 1960s.

Commenting on the data Sunak said: “We are determined to get our public finances back on track — that’s why we have set out the focused and responsible steps we are taking to keep debt under control.”