The UK government borrowed another £8.8bn ($12.29bn) last month, much less than economists were expecting.
Data published by the Office for National Statistics (ONS) on Friday showed public sector net borrowing stood at £8.8bn in January. Economists had forecast borrowing of £25bn.
While the monthly figure was below forecasts, the UK's national debt still stands at £2.1tn. The ONS said debt as a percentage of GDP hasn't been this consistently high since the 1960s.
"Lower-than-expected borrowing in January should not be interpreted as a signal that the economy is withstanding the third lockdown relatively well," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
"A sharp £2.1bn year-over-year decline in interest payments, and the vanishing of contributions to the E.U.’s budget, which totalled £2.2bn in January 2020, helped."
The COVID-19 pandemic has forced the government to borrow sums not seen in peace time. The state is on track to borrow £400bn by the end of the current financial year in April. The cash has gone towards protecting businesses, supporting jobs, and bolstering the NHS and public health response to the virus.
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The government spent £81.9bn on day-to-day activities in January, including £5.1bn on COVID-19-linked job schemes. State spending was £19.7bn higher than January 2020.
The UK has so far borrowed £270.6bn in the first 10 months of its current financial year, £222bn more than in the same period last year. It marks the highest public sector borrowing in any April to January period since records began in 1993.
Low global interest rates have made the borrowing binge affordable but UK chancellor Rishi Sunak has warned that a change in rates could soon make the debt pile unaffordable. Sunak has repeatedly signalled his desire to put public finances on a more sustainable footing as soon as possible.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this," Sunak said in a statement on Friday.
The chancellor is set to deliver his annual budget on 3 March with speculation that he could announce tax rises to help plug the hole in public finances. Targets reportedly include capital gains tax and the personal income tax allowance.
"The Chancellor likely won’t shy away from setting out plans for borrowing to remain very high in 2021/12, probably close to 10% of GDP," said Tombs. "Record low debt servicing costs, despite the near-100% debt-to-GDP ratio, are enabling such largesse to continue."
Economists have mostly urged the chancellor to hold off on tax rises and instead wait until the economic recovery from the COVID-19 crisis to take root.
The UK economy shrank by 10% in 2020 and is likely to contract further in the first quarter of 2021 due to lockdown. The Bank of England believes the economy will "recover rapidly" in the second half of the year thanks to the rollout of vaccines.
"Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters' minds by the time of the next general election in May 2024," Tombs said.
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