U.K. Borrowing Falls More Than Expected as Economy Rebounds
U.K. government borrowing is running well below levels seen at the height of the coronavirus pandemic as the economy emerges from lockdown and people shift from benefits to work.
The budget deficit stood at 24.3 billion pounds ($33.8 billion) in May compared with 43.8 billion pounds in the same month of 2020, the Office for National Statistics said Tuesday. The shortfall was below the 25.5 billion pounds median forecast in a Bloomberg survey of economists.
The figure is also below the 28.5 billion pounds predicted by the Office for Budget Responsibility. That points to a potentially faster improvement in the public finances, thanks to surprisingly buoyant economic growth and a strengthening labor market.
“As we emerge from the pandemic, we are continuing to support people and businesses to get back on their feet,” Chancellor of the Exchequer Rishi Sunak said in a statement. “We are taking to keep debt under control in the years to come.”
The budget deficit ballooned to a peacetime high of 14.3% of GDP in the last fiscal year, largely reflecting the vast cost of supporting workers and businesses through the deepest recession in 300 years. The cumulative cost of wage subsidies alone reached 65 billion pounds in May.
In March, the OBR predicted that borrowing would fall to just over 10% in the current fiscal year. Since then, however, a rapid vaccination program has seen the outlook improve dramatically. On average, economists expect growth this year of around 7%, versus the 4% predicted by the fiscal watchdog.
The hope is that growth will bring down the deficit without Sunak having to implement the hefty tax rises he has penciled in from 2023 to pay for the pandemic.
Tax revenue rose 15%, and spending fell 12% from a year ago. Debt stood at 99.2% of GDP.
The deficit in the first two months of the fiscal year was 53.4 billion pounds, with the ONS revising down borrowing in April by 2.6 billion pounds. The shortfall was 14.1 billion pounds lower than the OBR forecast.
“More than a third of that reflects differences in the timing of EU divorce bill payments,” the watchdog said in a commentary on the latest figures. “But lower spending and moderately stronger receipts growth mean that two months into 2021-22, the underlying outperformance of borrowing relative to forecast is 8.6 billion pounds.”
©2021 Bloomberg L.P.