UK public sector borrowing continues to undershoot forecasts by wide margin

Public sector borrowing continued to slow last month, undershooting forecasts by a wide margin, but nevertheless remained near record highs.
According to the Office for National Statistics, public sector net borrowing, excluding banks, reached £10.4bn in July (consensus: £11.9bn).

That was £10.1bn less than in the same month one year ago but the second-highest amount of borrowing since record began in 1993.

Central government receipts on the other hand improved by £9.5bn from a year earlier to reach £70.0bn, while spending shrank by £2.9bn to £79.8bn.

For the year-to-date, ONS estimated that PSNB had reached £78.0bn, marking a drop of £61.6bn from 2020 but still the second-highest tally since 1993.

The public sector’s stock of debt meanwhile was increased to £2.22trn or the equivalent of 98.8% of gross domestic product, the most since 99.5% recorded in March 1962.

ONS revised down its estimate for PSNB over the preceding three months from £69.5bn to £67.7bn.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, highlighted the undershoot in PSNB in comparison to the £15.6bn projected by the Office for Budget Responsibility, as economic activity bolstered the public accounts.

Nevertheless, he expected that 25% outperformance in the first four months of the fiscal year to narrow as the year progressed.

The reason for that was that OBR had penciled-in quarter-on-quarter GDP growth over the next three quarters of 3.0%, 3.3% and 1.1%, against Tombs own projections of 1.5%, 1.5% and 1.2%, respectively.

Furthermore, government had drawn less than expected on the Coronavirus Job Retention Scheme and the Self-Employment Income Support schemes, both of which were set to expire in the third quarter.

Interest payments on debt were also expected to overshoot OBR’s forecasts due to the rising retail price index and the health costs associated with Covid-19 over the coming winter had likely been underestimated.

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