Rishi Sunak was presented with yet another economic headache today as surging inflation and slowing growth meant he was forced to borrow more than planned in May.
Latest figures from the Office for National Statistics (ONS) showed the Chancellor went to the debt markets for a higher than expected £14 billion during the month in order to keep the wheels of state turning.
The ONS data shows that interest payments surged by 70% compared with last year to £8.6 billion, a record for the month as the Government was obliged to increase its payments on index-linked gilts.
But City analysts said today’s figures pointed to a worrying deterioration in the public finances that could hamper the Chancellor’s ambitions to cut taxes or provide more help to vulnerable households in the cost of living crisis.
Paul Dales, chief UK economist at forecaster Capital Economics, said: “The larger-than-expected rise in public borrowing in May is an early blow for the Government on a day when it is expected to lose two by-elections.
“What’s more, the combination of a further weakening in economic activity and more interest rates rises will probably mean that borrowing overshoots the OBR’s 2022/23 forecast of £99bn by at least £10 billion. That will limit the ability of the Chancellor to cut taxes and or provide more grants to households when the cost of living crisis worsens later this year.
“Borrowing is still declining relative to a year ago, but it is now declining slower than the OBR forecast in March’s Spring Statement. April’s figure was revised up from £18.6 billion to £21.9 billion and borrowing in May of £14.0 billion was worse than both the OBR forecast of £10.3 billion and the consensus forecast of £13.2 billion.
The Chancellor said: “Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets. That is why we are taking a balanced approach — using our fiscal firepower to provide targeted help with the cost of living, while remaining on track to get debt down.
The ONS data showed central government receipts were £66.6 billion in May 2022, £5.7 billion more than in May 2021, of which tax receipts were £48.3 billion, an annual rise of £3.4 billion.
Central government current expenditure was £74.0 billion, £2.2 billion less than in May 2021, with the additional £3.1 billion cost of debt interest payments offset by a reduction of £4.9 billion in subsidies.