UK borrowing hits £36.1bn as Rishi Sunak says Covid impact ‘could have been far worse’

Britain’s public sector borrowing surged to £36.1 billion in September, £28.4bn more than a year earlier, as the government’s heavy spending to prop up the economy continued amid the Covid-19 pandemic. While September’s borrowing was the third-highest figure since records began, according to the Office for National Statistics, Britain’s budget deficit in the first half of the fiscal year climbed to £208.5bn as extra spending was needed to pay furlough wages and support businesses. Separately, annual consumer price inflation rose to 0.5 per cent in September from 0.2 per cent in August , when the inflation rate was reduced by UK finance minister Rishi Sunak's discount dining scheme, Eat Out to Help Out. "Whilst it's clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods," Mr Sunak said in a statement after the public sector borrowing figures were published on Wednesday. "Over time and as the economy recovers, the government will take the necessary steps to ensure the long-term health of the public finances." The national debt is now 103.5 per cent of gross domestic product – the highest ratio since the financial year ending 1960. The £208.5bn borrowing figure for the April to September period is also the highest since records began in 1993, and £174.5bn more than in the same period last year. “The coronavirus has had an impact on public sector borrowing that is unprecedented in peacetime,” the ONS said. “Provisional estimates indicate that the £208.5bn borrowed in the first half of the current financial year (April to September 2020) was nearly four times the £54.5bn borrowed in the whole of the last full financial year (April 2019 to March 2020).” While the inflation figure was slightly more positive, the headline rate has been at less than half the Bank of England’s 2 per cent target since April, when the UK completed its first full month of lockdown. “The UK's inflation number, which has moved in a positive direction, came ahead of the expectations,” said Naeem Aslam, chief market analyst at Avatrade. “The number printed the reading of 0.5 per cent against the forecast of 0.4 per cent. The improvement in the CPI number has also helped to move higher as well. It is likely that we may see the currency pair cross 1.30 against the dollar.” Paul Dales, chief UK economist at Capital Economics, said an inflation rate of just 0.5 per cent in September and new Covid-19 restrictions darkening the economic outlook once again, makes it "hard to think of reasons why the Bank of England won’t launch another £100bn or so of quantitative easing at the policy meeting on 5th November". Bank of England policy maker Gertjan Vlieghe said on Tuesday that risks are tilted towards more stimulus. The budget deficit – the amount the government needs to borrow to fund its spending – was on track to hit £400bn in the current fiscal year even before Mr Sunak announced further measures to support jobs and wages in recent weeks. "There is little sign of the increase in spending and fall in receipts getting smaller. With the recovery petering out, a strong rebound in tax receipts looks unlikely in the months ahead either," said Andrew Wishart, UK economist at Capital Economics While the government will make its last payments to workers on furlough through the Coronavirus Job Retention Scheme in October, the new Job Support Scheme, which includes furlough payments for staff of businesses forced to close, will begin. With the virus continuing to force more areas into Tier 3 lockdowns, the government is more likely to increase fiscal support further than scale it back." In another sign of the uncertainty, the government said on Wednesday it was cutting the length of its upcoming spending review to just one year, rather than the planned three.

UK borrowing hits £36.1bn as Rishi Sunak says Covid impact ‘could have been far worse’

Britain's inflation rate rose to 0.5% last month from 0.2% in August