U.K. Headed for Deficit $41 Billion Lower Than Sunak Forecasts
(Bloomberg) -- The U.K. Treasury is likely to borrow 30 billion pounds ($41 billion) less than Chancellor of the Exchequer Rishi Sunak forecast in his March budget for the current fiscal year, the Institute for Fiscal Studies said.
The researcher said the Treasury will probably have to spend that money on urgent needs in health, education and transport as well as rising debt interest payments.
The findings highlight the constraints the U.K. Treasury is under even as a rapid rebound in economic growth boosts tax revenue and shifts more people into work from the welfare benefit rolls. Rising coronavirus infection levels also present a risk to the public purse that Sunak will have to address in the months ahead.
“Any additional spending to meet the demands and cost pressures from Covid, or to meet pre-existing spending demands such as for social care, would potentially require spending cuts elsewhere or further increases in tax,” Isabel Stockton, research economist at the IFS, said in a statement published Wednesday ahead of official data on public finances.
Rapid deployment of vaccines and the accompanying higher growth is set to reduce this year’s borrowing to less than the 234 billion pounds forecast in March, according to forecasts from Citigroup Inc. done for the IFS. The medium-term outlook means there is “little-to-no space for permanent giveaways,” the economists wrote.
The IFS also said:
- The U.K.’s economy in 2025 is expected to be about 3% smaller in cash terms versus pre-pandemic forecasts
- Currently the government’s revenues far outweigh the increase in debt interest spending
- If growth slows much, higher interest rates would “become more burdensome”
- Some public sector budgets are facing a real-terms cut of about 3% between 2021 and 2022 if current spending plans stay in place
- Local government, public transport operators and the justice system are also in need of more support
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