Government borrowing reached an all-time high in December, driven by the expense of helping consumers pay their energy bills and rising interest rates on debt.
The disparity between spending and tax revenue was £27.4 billion, the highest December total since records began in 1993.
The interest on government debt has reached £17.3 billion, more than doubling in one year.
According to the Office of National Statistics (ONS), inflation was the primary cause of the increase in borrowing.
While gas prices have begun to decline. The average UK energy bill is still about double what it was before the Russian invasion of Ukraine.
This winter, the government reduced the cost of energy bills in England, Scotland, and Wales by £400.
It also introduced the Energy Price Guarantee scheme, which caps annual household energy costs at £2,500 on average.
It comes at a time when inflation, the pace at which prices rise, is at its highest level in forty years. Placing strain on millions of households.
According to Grant Fitzner, chief economist at the ONS, the cost of energy bill assistance added almost £7 billion to the December borrowing estimates.
In the meantime, the interest payable on UK gilts, or bonds, which the government sells to international investors to raise the money it needs, has increased dramatically, he noted. This is large because many gilts are “index-linked,” meaning that the government’s repayments climb in tandem with the current double-digit inflation rate.
“Without these two things, public sector borrowing would have been lower than it was a year ago,” Mr. Fitzner stated on the Today show.
He predicted that government borrowing will decline once energy assistance programs are no longer required and inflation. Which is believed to have reached its peak, eventually declines.
‘Deteriorating quickly’
The borrowing figures “provided fresh indication that the government’s fiscal position is rapidly deteriorating”. According to Capital Economics senior UK economist Ruth Gregory.
She stated that borrowing was much above what economists had anticipated, that debt interest payments were at an “eye-popping” level, that government spending was exorbitant, and that there were “economic pressures.”
Chancellor Jeremy Hunt has stated that he will be required to make “eye-watering” cuts to public spending to restore fiscal stability.
In addition, he has had to reverse large portions of the tax cuts promised by his predecessor, Liz Truss, after her proposals prompted market panic.
“The government is aiding millions of people with the expense of living,” Mr. Hunt said of the latest borrowing numbers. But we must also ensure that our debt level is equitable for future generations.”
To cut inflation in half and increase economic growth. The government has “already made some difficult decisions to reduce debt,” he said.
“Bent a corner”
At the end of December, the ONS reported that total public sector debt hit £2.5 trillion. Or approximately 99.5% of UK economic production, or gross domestic product (GDP) – a level not seen since the early 1960s.
Since the beginning of the fiscal year in April, borrowing has reached a total of £128.1 billion, up £5.1 billion from December.
Inflation may have turned a corner after falling in November and December, according to Bank Governor Andrew Bailey. Who added that it is “expected to reduce substantially” this year as energy prices decline.
However, Mr. Bailey also cautioned that high job vacancy rates put employees in a strong position to negotiate salary increases. Which might prevent inflation from decreasing as swiftly.
Currently, the annual rate of price increases is more than five times the Bank’s aim of 2%, at 10.5%.
The Bank of England will decide next week whether to raise interest rates again to reduce inflation.
