Source: Sharecast
According to the Office for National Statistics, public sector net borrowing was £18.3bn in August, up £2.9bn on the same month last year and higher than the £15.7bn markets had pencilled in. It also exceeded the Office for Budget Responsibility’s forecast by £3.5bn.
Self-assessed income tax receipts in July and August rose by £1.9bn to £18.6bn. That was slightly above the OBR’s forecast. However, spending was also above target, in part due to rising inflation, which has been sent higher once again on the back of conflict in the Middle East and volatile energy markets.
Debt interest payments totalled £8.8bn, the highest August figure since monthly records began in 1997.
Tom Davies, senior statistician at the ONS, said: "On the month, borrowing was up by almost a fifth on last August, as spending increased by more than government income, partly reflecting the impacts of inflation."
In the financial year to date, borrowing was notably lower than the same period last year, down 2.7% at £77.3bn. However, the OBR had expected a bigger fall.
New chancellor John Healey is scheduled to present his first Budget on 28 October. But Capital Economics economists Ruth Gregory told the Financial Times that Tuesday’s figures painted a “dismal picture” of the UK’s financial situation, and warned that a number of policy ambitions now faced being reined in or delayed “to avoid bid tax hikes and/or a backlash in the markets”.
Russ Mould, investment director at AJ Bell, said: “Higher than expected government borrowing alongside rising gilt yields and higher inflation have caught Andy Burnham and Healey in a spider’s web. They might find the only way to break free and achieve their goals is to push up taxes, or lower their ambitions.
“All signs point towards a potentially difficult Budget, with businesses and consumers braced for major changes on taxation.”
Neil Wilson, investor strategist at Saxo UK, said: “Rising debt interest costs mean less headroom for the chancellor, perhaps at least half of what Rachel Reeves left him in March, and forces Burnham to confront the dismal fiscal arithmetic head on way earlier than he had hope. An election may not be far away.”