UK government borrowing at record December high due to energy support and debt interest – business live

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Key events

Borrowing overshoot further limits chances of big budget giveaways, says Ruth Gregory, senior UK economist at Capital Economics.

December’s public finances figures provided more evidence that the government’s fiscal position is deteriorating fast. And high government spending in the early months of 2022/23 and the pressures from the weakening economy implies borrowing will come in at about £175bn, broadly in line with the OBR’s forecast of £177bn, but a huge £52bn above the 2021/22 total.

Total tax receipts in December, at £74.6bn, were higher than last December’s £70.6bn. But the recent rises in RPI inflation (to which index-linked gilts are pegged) caused eye-watering high debt interest payments of £17.3bn (OBR forecast: £17.1bn), the highest December figure since records began. Meanwhile, the Chancellor’s energy support added £9.1bn. As a result, total public expenditure came in at £91.2bn, a whopping £16.4bn higher than last December, although that was still a bit lower than the £91.6bn the OBR had expected.

Admittedly, after nine months of the 2022/23 fiscal year, cumulative borrowing is still £2.7bn lower than the OBR’s November forecast (note figures for borrowing in previous months were revised down by a cumulative £4.6bn). Even so, this leaves the budget deficit on a deteriorating path. And that’s before taking into account the government’s energy price support in the remaining three months of the 2022/23 fiscal year.

Overall, today’s worse-than-expected public finances figures will only embolden the chancellor in the budget on 15March to keep a tight grip on the public finances and mean that he waits until closer to the next general election, perhaps in 2024, before announcing any significant tax cuts.

Samuel Tombs, chief UK economist Pantheon Macroeconomics, has crunched the numbers.

Turning to the details of December’s data, interest payments leapt to £17.3bn, from £8.7bn a year ago, due to the big month-to-month jump in the RPI [retail prices index] two months earlier, which primarily reflected October’s increase in consumer energy prices. Note that changes in the RPI determine the accrued level of payouts on index-linked gilts.

In addition, the Energy Bills Support Scheme and the Energy Price Guarantee collectively drove a £4.8bn year-over-year rise in subsidies.

Meanwhile, national insurance receipts rose only 2.2% year-over-year, compared to the 16.0% growth rate recorded in the first seven months of the fiscal year, primarily as a result of the reversal of April’s hike towards the beginning of November. Total receipts, however, came in £0.3bn higher than the OBR forecast.

To help them cope with spiralling energy prices, the government is giving households £400 towards the cost of their energy bills, paid in six evenly spread portions between October and March. Businesses have also received support with their energy bills, but this will be scaled back drastically from April.

Introduction: UK government borrowing at record December high due to energy support and debt interest

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK’s public finances have worsened considerably. The government borrowed £27.4bn in December, the highest December figure on record, largely because of spending on energy support schemes and higher debt interest.

December’s borrowing was £16.7bn higher than in December 2021, and the highest since monthly records began in January 1993. Economists had forecast £17.75bn.

The figure was also £9.8bn more than the £17.6bn forecast by the Office for Budget Responsibility (OBR). This means that the chancellor may have little room for tax cuts in the spring budget.

Debt interest payable by the central government amounted to £17.3bn, also the highest December figure on record. This is largely because of the impact of the rise in inflation, as measured by the retail prices index, on index-linked UK government bonds, known as gilts.

Public sector net borrowing excluding public sector banks was £27.4 billion in December 2022.

This was the highest December borrowing on record, largely because of spending on energy support schemes and higher debt interest.

➡️ https://t.co/wFBmlu7vSV pic.twitter.com/uGnySTO3DF

— Office for National Statistics (ONS) (@ONS) January 24, 2023

The chancellor of the exchequer, Jeremy Hunt, says:

Right now we are helping millions of families with the cost of living, but we must also ensure that our level of debt is fair for future generations.

We have already taken some tough decisions to get debt falling, and it is vital that we stick to this plan so we can halve inflation this year and get growth going again - creating better paid jobs across the country.

Elsewhere, the US carmaker Ford has announced 3,200 job losses in Europe, with Germany hard hit. The news sent its share price 3.2% higher.

US markets had a good start to the week, with the S&P 500 closing above the 4,000 level, up 1.2%, and the Nasdaq 100 leading the way higher with its second daily gain of more than 2%. There were also more job cuts in the tech sector, as the music streaming service Spotify said it was cutting about 600 jobs – the latest big tech company to admit it expanded too quickly during the coronavirus pandemic.

Michael Hewson, chief market analyst at CMC Markets UK, says:

The outperformance in tech appears to point to a growing conviction on the part of investors that the Fed will soon have to look at cutting rates before the end of the year, although to look at bond markets yesterday, yields also moved higher, as money flowed out of treasury markets.

With a lot of tech companies starting to announce job cuts, as well as other measures to rein in costs, and inflationary pressures showing further signs of easing, it would appear that US investors are starting to think in terms of the next move higher, despite concerns over lower profits.

Given the uncertain economic backdrop this comes across as a bit of a leap of faith, and its also notable that while US markets have started to gain momentum in the past few days, European markets have started to lose some of their early year momentum.

While US markets surged higher yesterday it is notable that today’s European market open is likely to be a much more tepid affair, suggesting perhaps that investors in Europe don’t share the same enthusiasm about the economic outlook, despite the reopening of the Chinese economy, which may help to provide a demand boost.

Today’s flash PMI surveys for January are expected to show a further improvement in economic activity due to the sharp falls in wholesale energy prices from the peaks in August and September.

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