UK Borrowing in June Lower Than Expected Amid Ongoing Financial Challenges
The UK government borrowed £16 billion in June, slightly less than anticipated, but faces significant public finance challenges.
By BBC News
The UK government reported borrowing of £16 billion in June, which is approximately £7.9 billion lower than the same month last year. This figure was also slightly below the £16.3 billion forecasted by the Office for Budget Responsibility (OBR). Despite this positive news, analysts caution that the overall public finances remain fragile.
The Office for National Statistics (ONS) indicated that total public sector net debt is nearing £3 trillion, almost equivalent to the UK's annual economic output, or gross domestic product (GDP). Ruth Gregory, deputy chief UK economist at Capital Economics, described the borrowing figure as "a rare piece of good news" for the new Prime Minister Andy Burnham and Chancellor John Healey, but stressed the limited scope for additional borrowing.
In the current financial year, total borrowing has reached £57.6 billion, which is £3.7 billion lower than the same period last year but £2.7 billion above OBR forecasts. James Smith, chief UK economist at ING, noted that the ongoing borrowing levels highlight the challenges facing the new leadership, particularly as they prepare for the autumn Budget.
Burnham and Healey have committed to adhering to the fiscal rules established by former Chancellor Rachel Reeves, although Burnham has indicated a willingness to utilise "any flexibility within them" for policy adjustments. Following Burnham's statements, the yield on 10-year government bonds rose above 5%, reflecting market reactions to the government's financial situation.
Chancellor Healey emphasised the importance of fiscal credibility for economic stability and national security. In contrast, Shadow Chancellor Sir Mel Stride accused the Labour government of overspending and increasing borrowing.
The government's first major policy initiative under the new leadership is to eliminate VAT on household electricity bills, effective from October, which will be funded by savings from the cancellation of the digital ID programme. However, this move has faced criticism from Labour's Darren Jones, who labelled it an unfunded tax cut.
June's borrowing was supported by increased revenues from income tax and VAT, while interest payments on inflation-linked debt decreased. The government paid £11.8 billion in debt interest payments in June, nearly a third lower than the previous year, although it remains one of the highest totals for that month on record.
The ONS also reported that the unemployment rate remained steady at 4.9%, with regular earnings growth holding at an annual rate of 3.4%. However, wage growth in the private sector has dipped below 3% for the first time since 2020, which may influence the Bank of England's decision on interest rates in the coming weeks. KPMG's chief economist, Yael Selfin, noted that subdued wage growth could limit workers' bargaining power and lead to a squeeze on living standards as energy costs rise.