Yahoo Finance UK borrowing falls as debt interest payments jump to £8.7bn
UK government borrowing fell in June as the reopening of the economy from lockdown fuelled a rise in tax receipts despite a record jump in debt interest payments to £8.7bn amid rising inflation.
The Office for National Statistics (ONS) said the government’s budget deficit – the shortfall between spending and income – reached £22.8bn in June, a fall of £5.5bn from the same month a year earlier.
However, the latest snapshot revealed the impact on the public purse from rising inflation as interest payments on government debt rose by more than 200% to £8.7bn, the highest monthly level on records dating back to 1997.
The rise in debt interest payments is likely to become a focus of Rishi Sunak after the surge in government borrowing during the Covid-19 pandemic pushed debt levels to levels unseen since the 1960s.
However, there is also good news for the chancellor in the June borrowing figures. With a sharp rise in consumer spending as consumers rushed back to shops, pubs and restaurants after the reopening from lockdown, tax receipts rose by 20% compared with the same month a year ago.
Overall public borrowing was below the £25.5bn forecast for the month made by the Office for Budget Responsibility in March.
The UK also made its first payment to the EU under the withdrawal agreement with Brussels of £800m, with similar payments expected to be made over the coming months.
The ONS said fluctuations in debt interest were largely down to a rise in the retail prices index measure of inflation, to which index-linked government bonds are pegged, after a sharp increase in recent months.
It comes as some economists warn Britain’s economy is at risk from soaring inflation amid supply bottlenecks and booming demand for goods and services as Covid-19 restrictions are relaxed. However, others, including the Bank of England, have said the recent burst of inflationary pressure is likely to be temporary.
The ONS said the extra funding required by the government for coronavirus support schemes, combined with lower tax receipts and the record economic downturn, pushed public sector debt to £2.2tn at the end of June, or about 99.7% of GDP – the highest ratio since 1961.
Sunak said the government would continue to support businesses and jobs but added: “However, it’s also right that we ensure debt remains under control in the medium term, and that’s why I made some tough choices at the last budget to put the public finances on a sustainable path.”
