UK government borrowing falls in February

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UK government borrowing fell in February, according to figures released on Tuesday by the Office for National Statistics.
The gap between spending and income came in at £13.1bn, down £2.4bn on the same month a year earlier, but marking the second-highest borrowing figure for February since records began in 1993. This was above expectations of £8.5bn and the Office for Budget Responsibility’s forecast of £8.0bn.

Compared with February 2020, before the pandemic hit, borrowing was up £12.8bn.

The data showed that interest payment on government debt surged 52.7% from a year earlier to a record £8.2bn last month amid soaring inflation.

The figures also showed that borrowing is now £25.9bn lower than the OBR expected for the year so far, and less than half of what was recorded last year, at £138.4bn..

Martin Beck, chief economic advisor to the EY ITEM Club, said: “While the Chancellor can take heart from a decreasing deficit as he prepares for Wednesday’s Spring Statement, recent geopolitical developments point to a tougher 2022-2023.

“Rising energy and commodity prices means inflation this year is on course to exceed the OBR’s forecast by a significant margin. By depressing real income growth, high inflation will weigh on economic activity and employment, negatively affecting tax receipts. It will also add further to the interest cost of inflation-linked gilts.

“Borrowing may also be lifted if the Chancellor responds to recent calls for more fiscal activism to alleviate cost of living pressures, such as cutting fuel duty or raising benefits. With so many moving parts, and uncertainty over how much of the recent strength in tax receipts will prove persistent, predicting the medium-term fiscal outlook is tricky. But we won’t have to wait long for more clarity.”

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