UK government borrowing below estimate but tax cuts unlikely

(Alliance News) - UK government borrowing was below forecast in September, giving the chancellor some fiscal wiggle room, though Jeremy Hunt may resist the urge to enact tax cuts.

Excluding public sector banks, borrowing totalled GBP14.35 billion, picking up from GBP11.40 billion in August. It was lower than the GBP15.90 billion accumulated in September 2022, however.

The ONS noted it was the sixth-highest borrowing figure for September since monthly records began in 1993, however. Nonetheless, September 2023's outcome was the first time borrowing fell year-on-year since a decline in borrowing in September 2022.

The latest figure was below the USD20.5 billion forecast by the Office for Budget Responsibility.

"Public borrowing undershot the OBR's forecast in September largely because interest payments amounted to just GBP700 million, well below the OBR's GBP4.8 billion assumption," Pantheon Macroeconomics analyst Samuel Tombs commented.

"Public borrowing over the first six months of 2023/24 has totalled GBP81.7 billion, 19.5% less than the OBR predicted in the budget. Full-year borrowing will total GBP105.9 billion, a hefty GBP25.7 billion below the OBR's forecast, if this trend is maintained. We doubt, however, that the OBR will lower its full-year forecast that much in the autumn statement on November 22."

However, Tombs believes Hunt will decide against any "significant pre-election tax cuts". The OBR is likely to upwardly revise its debt interest payments forecast next month, "leaving no scope left for discretionary tax cuts".

The ONS also said net debt stood at GBP2.599 trillion at the end of September, equalling around 97.8% of UK gross domestic product.

AJ Bell analyst Russ Mould commented: "The big issue now is whether the government feels capable of splashing the cash, given that public sector net borrowing came in well below the OBR's GBP20.5 billion forecast. It's unlikely given that Chancellor Jeremy Hunt is looking to get the country's finances in a significantly better shape. The UK's net debt as a percentage of GDP is still far too high and something needs to be done about it."

Dutch bank Rabobank believes the towering debt-to-GDP figure could temper tax cut expectations.

"UK data this morning has also highlighted that UK government borrowing is on track to come in below official forecasts. That said, the UK national debt is estimated at just above the 100% of GDP level. The size of the debt should limit the temptation of the ruling Tory party to announce tax cuts ahead of the next election. However, this morning has brought news that the Labour party opposition has overturned huge Tory majorities in two by-elections," Rabobank analyst commented.

The UK's Labour party has dealt a double by-election blow to Prime Minister Rishi Sunak by overturning huge Tory majorities in Tamworth and Mid Bedfordshire.

Keir Starmer claimed Labour was "redrawing the political map" by taking seats which had been comfortably Conservative ahead of the general election expected next year. In Tamworth, Labour's Sarah Edwards defeated Tory Andrew Cooper by a majority of 1,316.

The Conservatives were defending a 19,634 majority, but a 24 percentage point swing to Labour saw that eradicated. Just half-an-hour later, there was even better news for Starmer as Mid Bedfordshire saw the largest majority overturned by Labour at a by-election since 1945.

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

Copyright 2023 Alliance News Ltd. All Rights Reserved.