Sunak Set to Smash U.K. Borrowing Record Four Months Into Job

(Bloomberg) -- Rishi Sunak, Britain’s finance minister for just four months, has presided over a borrowing surge that appears set to dwarf the record posted during the financial crisis.

Figures due Friday are forecast to show the budget deficit jumped about 50 billion pounds ($63 billion) in May as the government continued its extraordinary interventions to support the economy through the coronavirus pandemic. That would take the total for Sunak’s first full three months to well in excess of 125 billion pounds.

It’s a hefty tab for a chancellor of the exchequer who only took over in mid-February, and is far higher than the pre-virus record of 50 billion pounds set in 2009. Worse, the number only looks likely to swell further, with the government currently paying the wages for almost 12 million jobs and more stimulus including tax breaks and infrastructure projects potentially in the pipeline.

The budget deficit in the current fiscal year, forecast to be around 55 billion pounds when Sunak took over, is now on course to top 270 billion pounds, according to the latest survey of private-sector economists compiled by the Treasury. That’s equal to about 14% of GDP, more than at any time since World War II.

The saving grace for Sunak is that Bank of England bond buying has kept market interest rates at historically low levels, easing the debt-servicing burden and prompting some economists and members of his Conservative Party to say he can afford to carry the load for some time to come.

The central bank’s vast asset purchases, which have almost exactly matched the increase in borrowing this year, may be expanded again as soon as Thursday, when officials are forecast to commit to buying a further 100 billion pounds of securities.

“The Bank of England is certainly doing its bit to keep funding costs low through its large scale QE program,” said Sanjay Raja, an economist at Deustche Bank AG. “At this stage, the current levels of spending are not a big issue for the chancellor. Whether such a spending appetite is sustainable beyond the next year will be a big question mark.”

The BOE’s support means that debates over how to eventually foot the bill for the extra debt can be kicked into the long grass. Indeed, Sunak may first look to spend even more, with the chancellor next month due to announce plans for aiding the U.K.’s recovery.

The precise cost of the pandemic is so unpredictable that the Debt Management Office has only announced its issuance plans through the end of July. The total for the first four months of the fiscal year stood at 225 billion pounds, and the DMO will release an updated outlook on June 29.

The OBR estimates the bill for direct government support at 133 billion pounds. But the combination of dwindling tax revenue and soaring welfare claims amid a recession is expected to add at least as much again to the deficit and push debt toward 100% of GDP, levels not seen since the 1960s.

Read More:

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• How U.K.’s $168 Billion Virus Aid Package Is Being Rolled Out
• Boris Johnson Revamps Agenda for Worst Recession in 300 Years
• U.K. Set for Record Bond Sales to Tackle Worst Crash in 99 Years

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