UK public sector snapshot "doesn't offer as much good news as hoped"

(Alliance News) - UK public sector net borrowing continued to rise in August, according to the Office for National Statistics on Thursday, as analysts are now looking ahead to Chancellor Jeremy Hunt's autumn statement.

"The latest public sector finances snapshot doesn't offer as much good news as hoped," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Public sector net borrowing, excluding public sector banks, reached GBP11.6 billion in August, which was 43% higher than the GBP8.1 billion in August last year.

In the UK fiscal year to date, borrowing stands at GBP69.6 billion, which is GBP19.3 billion more than the same period last year.

However, it was GBP11.4 billion less than the Office for Budget Responsibility's forecast of GBP81.0 billion. AJ Bell's Danni Hewson said this has been thanks to "an increasing tax take and falling interest payments as inflation continues to cool".

It was the fourth highest borrowing for August since records began in 1993, behind only the Covid-years of 2020 and 2021, and 2009 after the global financial crisis.

Central government borrowing rose by GBP1.2 billion to GBP8.3 billion in August, but was GBP1.1 billion less than the GBP9.4 billion forecast by the OBR, the ONS noted.

At GBP2.594 trillion at the end of the month, the UK government's total debt is estimated to be around 98.8% of the country's annual gross domestic product.

The ratio is continuing at levels last seen in the early 1960s, the ONS said.

"Spending may be the priority, given the pressing structural problems facing the UK right now, particularly in health and education, with labour disputes ongoing and schools crumbling. The risk is that the economy continues to contract, unemployment ticks up again and wage demands slow, and government finances worsen again," Streeter warned.

Victoria Scholar, head of investment at interactive investor, also noted "growing pressure" from Conservative Members of Parliament on Chancellor Jeremy Hunt to cut taxes ahead of the next general election.

Though some will hope the shortfall will give the government some wiggle room for potential tax cuts, Hunt has strongly indicated otherwise in recent remarks.

On Wednesday, Hunt warned that there will be no pre-election "borrowing binge", despite saying the government's plan to tackle the cost-of-living crisis is working following a surprise fall in inflation to 6.7% in August, down from 6.8% in July. Such a move would "simply keep interest rates higher for longer", he said.

Hunt will outline his plans for spending and taxation in his autumn statement in November.

"There's little doubt the chancellor will be coming under increasing pressure to yank the magic money tree out from under the stairs and plant it proudly in the garden of Number 11 ahead of the next election," said AJ Bell's Danni Hewson.

By Sophie Rose, Alliance News reporter

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