U.K. Government Borrowing Jumps as Inflation Boosts Debt CostsBy
Net Borrowing 6.9 billion pounds in June, higher than forecast
Inflation pushes up cost of servicing index-linked gilts
Britain had a larger-than-expected budget deficit last month as rising inflation pushed up debt payments.
Net borrowing was 6.9 billion pounds ($9 billion), up from 4.8 billion pounds in June 2016 and above the 4.9 billion pounds predicted by economists. It left the shortfall in the first three months of the fiscal year at 22.8 billion pounds, up 9 percent on the year.
The figures highlight the risks facing the public finances as rising prices and stagnant wage growth take their toll on the economy.
Debt payments jumped 33 percent from a year earlier to 4.9 billion pounds, the highest for any June since 2011, as inflation increased the cost of servicing index-linked government bonds.
Spending was also driven by a surge in payments to the European Union and a 12 percent increase in government spending on goods and services. Total government spending rose 8.3 percent, almost double the 4.6 percent increase in revenue.
The figures may raise fresh questions about whether Chancellor of the Exchequer Philip Hammond can limit borrowing to 58 billion pounds this year, as forecast by his budget watchdog in March.
Hammond is also under pressure to boost wages for millions of public-sector workers and spend more on health and education after the Tories’ catastrophic election performance highlighted the frustration of voters after seven years of austerity.
The deficit has fallen from 10 percent of GDP in 2010 to 2.4 percent last year, and Hammond is pledging to balance the books by 2025. But the Office for Budget Responsibility warned last week that a severe shock would quickly put the U.K. finances on an unsustainable path with net debt soaring above 100 percent within five years from its current 87 percent.
While revenue so far this fiscal year is running ahead of OBR forecasts, so too is spending, which grew 5.6 percent between April and June.
Central government cash borrowing, which determines bond issuance, was 17.8 billion pounds last month and 12.4 billion pounds in the fiscal first quarter.