Pound slips after figures reveal UK government borrowing hit £11.8bn in August ahead of a mini tax cut, with stamp duty cut now also rumored
- Office for National Statistics predicts August borrowing of £6billion in May
- Interest payments soared to £8.2bn in August – the highest since 1997
The pound fell to a fresh 37-year low against the US dollar on Wednesday after official figures showed government borrowing in August was nearly double forecast.
The pound fell 0.42 per cent to nearly $1.1349 after data from the Office for National Statistics showed UK public sector borrowing hit £11.82 billion last month, against the agency’s forecast of £6bn in May.
The figures came as new Prime Minister Liz Truss’ Chancellor of the Exchequer Kwasi Kwarteng prepares to opt for growth and present a mini-budget for tax cuts on Friday, with expectations that rights stamp duty on home purchases could also be reduced.
Soaring inflation also meant interest payments on Britain’s public debt reached £8.2bn in the month, £1.5bn more than in August 2021, the highest monthly figures since April 1997 and well above forecast of £4.9bn.
Chancellor Kwasi Kwarteng said he would reduce medium-term debt
Public sector borrowing remains high compared to pre-Covid levels
Soaring CPI means interest paid on inflation-linked gilts has skyrocketed
The ONS said: “Since mid-2021 the cost of servicing central government debt has increased significantly.
“These rising costs do not primarily reflect recent increases in the level of public debt, nor are the evolution of servicing costs driven by large increases in interest – or coupon – payments by the government. .
“Instead, recent high levels of debt interest payable are largely the result of higher inflation, with interest payable on indexed gilts rising in line with the retail price index. “
August borrowing left public sector net debt at around £2.43 trillion at the end of the month, around 96.6% of GDP, and an increase of £195.2 billion from at the same time last year.
The figures will heighten concerns that the new government of Liz Truss’s commitment to stepping up fiscal support to households and businesses against the cost of living crisis could hurt public finances.
Chancellor Kwasi Kwarteng will present more details on the government’s energy support package and proposed tax cuts on Friday.
Meanwhile, the Bank of England will make an interest rate decision on Thursday, with markets now expecting a jump of 75 basis points to 2.5% as the bank tries to rein in inflation.
Higher interest rates mean that the Treasury pays more to holders of government bonds.
Central government borrowing is lower than the same period last year, when it was still providing Covid-related support to workers and businesses
While consumer price inflation is very high at around 10%, the latest figures from the ONS have not heightened concerns over faltering economic growth. The BoE previously predicted that the UK will enter five consecutive quarters of recession from next month.
Tax receipts of £69.9billion in August marked only a slight miss from the Office for Budget Responsibility forecast of £70.5billion.
Responding to the latest figures, Kwarteng said: “I am committed to debt reduction over the medium term. However, in the face of a major economic shock, it is only right that the government act now to help families and businesses.
“Our priority is to grow the economy and improve living standards for all – with strong economic growth and sustainable public finances going hand in hand.”