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UK borrowing falls to £18.6bn but interest rates set to jump

·Finance Reporter, Yahoo Finance UK
·3-min read
borrowing  Rishi Sunak speaking at the CBI annual dinner at the Brewery in London. Picture date: Wednesday May 18, 2022.
Chancellor Rishi Sunak is facing calls to do more to ease the cost of living crisis as borrowing eases. Photo: PA

UK public sector borrowing dropped more than expected last month, offering some relief for chancellor Rishi Sunak as he considers whether to offer more support for the cost of living crisis.

Borrowing — the difference between spending and tax income — was £18.6bn ($23.4bn), down £5.6bn from a year earlier, the Office for National Statistics (ONS) said.

Borrowing fell in April compared with last year because receipts increased as the economy grew, and spending fell as government support schemes for households and businesses declined.

However, it was the fourth-highest April borrowing since monthly records began, and was £7.9bn higher than in April 2019, before the pandemic.

The ONS said government receipts of £70.2bn included tax of £50.2bn, which was an increase of £5.5bn.

Read more: Bank of England prepared to raise interest rates again, says Bailey

The figures include the £3bn cost of the council tax rebate, which offered £150 to many households across the UK to help with soaring energy bills.

The ONS also estimates that April’s 1.25% national insurance rise will bring in around £18bn this financial year.

The figures also showed that interest payments on the government’s borrowing stood at £4.4bn last month, which was lower than the £4.9bn seen a year earlier.

But interest payments are expected to soar going forward, due to rocketing levels of the Retail Prices Index measure of inflation used on government debt payments, with June data set to show the full scale of the recent jump in inflation.

Sunak is under growing political pressure to do more to help those hardest hit by a record high inflation.

“While we are doing what we can to help families deal with rising prices, inflation is also pushing up our spending on debt interest — which is expected to reach £83 billion this year,” the chancellor said.

“We must take a balanced and responsible approach to support people now, while also not burdening future generations, and we’re on track to drive public debt down by 2024-25,” he added.

Read more: Pay gap widens as bosses earn 63 times more than their employees

Total public debt, excluding public-sector banks, was £2.348tn or 95.7% of GDP, down from 96% in March.

"The lower-than-expected public borrowing of £18.6bn in April and the downward revisions to borrowing in 2021/22 will only add to the pressure on the chancellor to go big when finalising the imminent support package for households," Paul Dales, chief UK economist at Capital Economics, said.

"We think any support will be small and targeted rather than big and widespread."

The ONS also cut its estimate for borrowing during the previous financial year by £7.2bn to £144.6bn, although this was still the third-highest financial year borrowing total since records began in 1947.

Watch: How does inflation affect interest rates?

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