Tuesday, October 19, 2021

UK set to undershoot towering COVID-19 borrowing forecast

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Britain’s record-breaking borrowing to pay for the coronavirus crisis is likely to be a little lower than forecast.

This is after data published on Friday showed the budget deficit grew by less than expected in the first two months of 2021.

The government borrowed £19.1 billion ($26.6 billion) last month, a record for February but less than the £21.0 billion forecasts in a Reuters poll.

The deficit for January was revised down by £5.6 billion, largely reflecting lower government procurement spending, the Office for National Statistics (ONS) said.

The budget deficit in the first 11 months of the financial year has soared to almost £279 billion, the highest relative to the size of the economy since World War Two.

But unless there is a major borrowing surge in March, the deficit looks likely to come in below an estimate set by the Office for Budget Responsibility (OBR).

The OBR said this month that the deficit was likely to surpass £350 billion in the financial year which ends on March 31.

The year-to-date figures published on Friday by the ONS do not include the £27.2 billion of COVID loan write-offs that the OBR estimates will need to be made.

Finance Minister, Rishi Sunak, on March 3 announced a budget plan which included £65 billion in further stimulus to help the economy through what he hopes will be a gradual lifting of COVID restrictions by the end of June.

Responding to Friday’s data, Sunak said his £352 billion of total extra spending and tax cuts so far had been the responsible thing to do.

“But I have always said that we should look to return the public finances to a more sustainable path once the economy has recovered and at the budget, I set out how we will begin to do just that,’’ Sunak said in a statement.

Sunak’s budget represents what the Bank of England has called a “material fiscal loosening in the near term” but there will be tax rises and a reduction in spending further out.

The Institute for Fiscal Studies, a think tank, said most of the spending cuts implied by the budget were “simply unrealistic, and borrowing or taxes will be higher than planned.”

Borrowing in the 2021/22 financial year, which starts in April, is estimated to fall to £234 billion, according to the OBR, still more than four times the deficit in 2019/20 which included only one month of the coronavirus crisis.

Public debt in February stood at £2.131 trillion or 97.5 per cent of annual economic output, holding at levels not seen since the early 1960s, the ONS said. 

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