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UK government borrowing fell in June as the economy continued to recover from the shock of the pandemic…. but the interest payments on the national debt were pushed up by rising inflation.
Figures released by the Office for National Statistics this morning show that public sector net borrowing (excluding the cost of public sector banks) fell to £22.8bn last month.
That’s £5.5bn less than in June 2020, but still the second-highest June borrowing since monthly records began in 1993.
The ONS reports that tax receipts were stronger in June than a year ago, following the reopening of parts of the economy earlier this year:
Central government receipts in June 2021 were estimated to have been £62.2 billion, a £9.5 billion (or 18.0%) increase compared with June 2020. Of these receipts, tax revenues increased by £8.1 billion (or 21.7%) to £45.5 billion.
Public spending rose, partly due to to the cost of fighting the pandemic, the ONS says:
Central government departments spent £31.1 billion on goods and services in June 2021, an increase of £1.7 billion (or 5.7%) including £17.7 billion on procurement and £12.8 billion in pay.
This cost includes the expenditure by the Department of Health and Social Care (DHSC), devolved administrations and other departments in response to the coronavirus pandemic including the NHS Test and Trace programme and the cost of vaccines.
Borrowing so far this financial year is also lower than in the teeth of the first wave of Covid-19.
Since April, the government has borrowed an estimated £69.5bn to balance the books — £49.8bn less than in the same period last year (but again, the second-highest April-June borrowing on record).
Last year’s record borrowing has been revised down a little too — by £1.5bn, to an unprecedented £297.7bn (the highest borrowing since financial year records began in 1946).
It means the national debt is now £2,218.2bn — or around 99.7% of UK GDP, the highest ratio since the 102.5% recorded in March 1961.
The report also shows that interest payments on central government debt were £8.7bn in June 2021, the highest monthly payment on record (since April 1997) – up from just £2.7bn in June 2020.
This was largely due to a rise in the Retail Prices Index (RPI) measure of inflation, to which index-linked gilts (government bonds) are pegged.
The ONS explains:
The interest related to the £470.7 billion index-linked gilts in circulation (at redemption value) increased by £6.0 billion in June 2021 compared to June 2020, mainly as a result of the large increase in the RPI between March and April 2021 impacting on the uplift of the three-month lagged index-linked gilts.
Public sector finance statistician Fraser Munro has more details:
Reaction to follow….
European stock markets are set for a slightly higher open, after a small recovery yesterday following Monday’s tumble.
- 7am BST: UK public finances for June
- Noon BST: US weekly mortgage approvals
- 2.30pm BST: Treasury committee hearing on the Office for Budget Responsibility’s Fiscal Risks Report
- 3.30pm BST: IEA weekly US oil inventory figures