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UK borrowing falls but remains second highest for November on record

·Business Reporter, Yahoo Finance UK
·3-min read
Rishi Sunak
Rishi Sunak is now under mounting pressure to provide fresh funding to sectors hit by a rise in COVID cases. Photo: UK Parliament/Jessica Taylor/Reuters

UK government borrowing fell in November as a pandemic surge in spending eased, however the rise of Omicron cases continues to loom.

Public sector borrowing, excluding banks, stood at £17.4bn ($23bn) last month, £4.9bn less than November 2020, but ahead of forecasts.

However, it was still the second highest level for November since records began in 1993, and £11.8bn more than the same period before the start of the pandemic.

The Office for National Statistics (ONS) added that debt costs are also rising at the fastest pace since after the financial crisis, with interest payments made by the Treasury rising 54% to £42.9bn during the month. This marked the biggest November jump since 2010.

Rising inflation means that it is costing the government more to borrow money, and the Bank of England's (BoE) decision to raise interest rates from 0.1% to 0.25% last week will also result in higher payments.

Debt increased to more than £2.3tn at the end of November, representing about 96.1% of the UK’s gross domestic product (GDP), the highest level recorded since 1963 when it was 98.3%.

The ONS estimates that the public sector borrowed £136bn in the financial year-to-November 2021, £115.8bn less than in the same period a year earlier.

Chart: ONS
Chart: ONS

Official forecasts suggest that borrowing may reach £183bn by the end of the financial year ending 2022, £138.9bn less than the £321.9bn borrowed in 2021. This amounted to 15% of GDP, the highest rate seen since the end of the Second World War.

In his budget in October, chancellor Rishi Sunak said he wanted to cut borrowing from 7.9% of GDP in the current financial year to 3.3% next year, but the new Omicron variant may slow growth.

"The figures for November are almost an irrelevance given the rapid spread of the Omicron variant, which looks like it may well force Boris Johnson’s hand into further public health restrictions," Richard Carter, head of fixed interest research at Quilter Cheviot, said.

"We know there could well be an Omicron-shaped black hole in the public finances, we just don’t yet know how big it could be."

Watch: Rishi Sunak holds meetings with business leaders as Omicron causes COVID slowdown

It comes as the UK could see further COVID restrictions to curb the spread of the new Omicron variant. Business groups, particularly those in the hospitality and leisure industries, have already urged the chancellor for more government support if restrictions go ahead.

Rishi Sunak is now under mounting pressure to provide fresh funding to sectors hit by a rise in COVID cases.

Bethany Beckett, UK economist at Capital Economics, said the latest data is "unwelcome news for the chancellor, who is once again facing the prospect of tighter COVID-19 restrictions and renewed government support to affected sectors".

Read more: Omicron brings challenging end to 2021 for UK businesses – Lloyds survey

She added: “But that all seems like old news now. These data predate the recent surge in coronavirus infections caused by the omicron variant, with a near-term tightening of virus restrictions once again a possibility.

“Although the economy has got better at coping with restrictions with each new wave, we still suspect it would prompt a deterioration in the public finances via lower tax revenues and the potential reintroduction of government support schemes.”

Watch: What is inflation and why is it important?

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