Sunak gets budget boost as UK borrowing $34b below forecast

Bloomberg

The UK Chancellor of the Exchequer Rishi Sunak was handed a major boost before Wednesday’s Spring Statement, as data showed the budget deficit was running 26 billion pounds ($34 billion) below
official forecasts in the first 11 months of the fiscal year.
The undershoot, which may rise even further when full-year figures are published next month, gives Sunak some extra space to address the nation’s deepening cost of living crisis during the fiscal update.
Prime Minister Boris Johnson’s government is under pressure to protect households and companies from soaring food and energy bills, exacerbated by the war in the Ukraine, as well as a tax rise that kicks in within days.
However, responding to the latest figures, Sunak stressed caution. Sunak has pledged to restore order to the government finances after borrowing surged during the pandemic to levels not seen since World War II.
“The ongoing uncertainty caused by global shocks means it’s more important than ever to take a responsible approach to the public finances,” the chancellor said. “With inflation and interest rates still on the rise, it’s crucial that we don’t allow debt to spiral and burden future
generations with further debt.”
The spike in inflation that’s hurting consumers is threatening to undermine the public finances. Around a quarter of government debt is tied to RPI measure of inflation, which has surged to a three-decade high.
The jump left debt-interest costs at 67 billion pounds between April and February. That’s 29.5 billion pounds higher — or 80% more — than the same period a year earlier and well above the Office for Budget Responsibility forecasts.
A significant further hit is likely in the coming fiscal year. The Institute for Fiscal Studies warned last month that the surge in prices will add 23 billion pounds to the cost of servicing Britain’s national debt across this year and next.
For now though, the picture is rosier. While February borrowing figures came in higher than expected, at 13.1 billion pounds, there were large downward
revisions to previous months.
That left the total for the first 11 months of the current fiscal year at 138.4 billion pounds, less than the 164.4 billion pounds the OBR forecast in
October.
Michal Stelmach, senior economist at KPMG UK, said borrowing was now “set to be around 30 billion pounds lower” for the full year. The OBR, which had predicted a shortfall of 183 billion pounds for 2021-22, will reveal its new forecasts alongside Sunak’s statement on Wednesday.
“Lots of people have been talking about lower-than-expected borrowing meaning the chancellor has money to spend,” Tim Pitt, a partner at Flint Global and a former adviser to past chancellors Sajid Javid and Philip Hammond, said in an
interview on Bloomberg Radio.
“What the chancellor cares about is not one-off improvements to the public finances,” he said. “What he needs is permanent ones. There’s a risk forecasts move against him. He’s going to want to hold back some headroom for nearer the election, for pre-election giveaways so he has a little bit of head room for maneuver but it’s pretty limited — single-figure billions.”