UK borrowed £14bn in May as inflation drove up interest debt costs

Show key events only Live feed Show key events only From 1h ago 02. 37 Introduction: Rising debt costs add to UK borrowing in May Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets. The UK government borrowed more than expected to balance the books last month, as rising inflation pushed up the cost of servicing the national debt.

May’s public finances, just released, show that the public sector spent more than it received in taxes and other income. This required it to borrow £14bn , £3. 7bn more than the independent Office for Budget Responsibility (OBR) forecast — and ahead of City forecasts of a £12bn monthly deficit.

That’s £4bn less than a year ago, due to the drop of pandemic spending such as the furlough scheme, and Test and Trace. But it’s £8. 5bn more than in May 2019, before the coronavirus (COVID-19) pandemic.

As this chart shows, it’s the third-highest May borrowing on record (after 2020 and 2021). UK government borrowing Photograph: ONS Tax take increased year-on-year reflecting the reopening of the economy; Value Added Tax revenues were up 10%, and Business Rates bringing in 13% more than a year ago. That helped to lift tax receipts to £48.

3bn, an annual increase of £3. 4bn. But interest payments on the UK national debt jumped by 70% compared with a year earlier.

Britain spent £7. 6bn on debt repayments, around £3. 1bn more than a year ago when it cost £4.

5bn. That’s because the payments on some UK government debt, or gilts, are linked to the retail prices index measure of inflation (which hit 11. 7% last month, we learned yesterday ).

So as the cost of living increases, so does the interest bill on the national debt. The ONS says: . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} On an accrued basis, this month saw the third highest debt interest payment made by central government in any single month and the highest payment made in any May on record. UK borrowing Photograph: ONS May’s borrowing lifted the national debt (excluding public sector banks) to £2. 36 trillion, or around 95.

8% of GDP. Public sector net debt excluding public sector banks was £2,363. 2 billion at the end of May 2022, or around 95.

8% of GDP. This is up £170. 1 billion, or 0.

5 percentage points of GDP, on May 2021 https://t. co/59hUfl8kLE pic. twitter.

com/3jCpNSXgrF — Office for National Statistics (ONS) (@ONS) June 23, 2022 Michal Stelmach , senior economist at KPMG UK , warns that “debt reduction this year remains a long shot”, given Rishi Sunak’s £15bn cost of living support package will add to borrowing. . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “The pace of deficit reduction is set to slow over the coming months, with the government’s latest package of cost of living measures providing a net fiscal loosening worth 0. 4% of GDP in 2022-23. We expect borrowing to overshoot the OBR’s March forecast by around £20bn this year, largely on account of higher spending and weaker economic growth.

“The debt profile will depend on the economic outlook which faces acute downside risks in the near term, while rising demand for healthcare coupled with falling working-age participation could also impede fiscal sustainability. We now expect public sector debt to peak in 2023-24, missing the OBR’s March forecast by two years. Also coming up today New surveys of purchasing managers in the UK, eurozone and US will show whether growth is slowing this month, as worries about a possible recession rise.

Millions of UK rail passengers faced another day of disruption as this week’s second strike begins. The rail industry is asking people to only travel if necessary today, with fewer than one in five trains in Great Britain expected to run. UK rail strike: second day of action to go ahead after talks fail again Read more With UK inflation hitting a 40-year high of 9.

1% last month, industrial unrest could spread as the government faces more calls for pay rises that reflect the cost of living. The country’s biggest teaching union is warning of strike action this autumn without an “inflation plus” deal. Norway’s central bank is expected to raise interest rates, from 0.

75% to 1%, while the Central Bank of the Republic of Turkey could leave rate on hold at 14%. The agenda 7am BST: UK public finances for May 9am BST: Eurozone ‘flash’ PMI survey of manufacturing and services for June 9am BST: Norges Bank interest rate decision 9. 30am BST: UK ‘flash’ PMI survey of manufacturing and services for June 11am BST: CBI distributive trades survey of UK retail Noon BST: Turkish central bank interest rate decision 1.

30pm BST: US weekly jobless claims report 2. 45pm BST: US ‘flash’ PMI survey of manufacturing and services for June Updated at 02. 48 EDT 2m ago 03.

43 Private sector growth in both Germany and France has slowed sharply this month, which will fuel concerns that Europe’s economy is faltering. In France , growth has slumped to its weakest since the peak Omicron disruption at start of 2022, the latest survey of purchasing managers shows. In Germany , growth slowed for the fourth month in a row to a six-month low, signalling a “sustained loss of momentum in the private sector economy”.

Big miss for French PMI . . .

Flash #France #PMI Composite Output Index slides to 52. 8 in June (May 57. 0), a 5-month low and way below expectations of 56.

0. Manufacturing output index at just 45. 7 (PMI at 51.

0) with services index down to 54. 4. https://t.

co/Qo7r5ebRf6 pic. twitter. com/bczXQ8l55b — Chris Williamson (@WilliamsonChris) June 23, 2022 Flash #Germany #PMI Composite Output Index falls to 51.

3 in June (May 53. 7, consensus 53. 1), a 6-month low and indicative of GDP contracting.

As with France, consensus well and truly missed More at https://t. co/uRyhgC0GC9 pic. twitter.

com/wG2POaTqMg — Chris Williamson (@WilliamsonChris) June 23, 2022 We get the eurozone-wide PMI report in about 20 minutes. . .

. 9m ago 03. 36 The copper price has dropped to a 16-month low this morning, as concerns rise over a rise in Covid-19 cases in key consumer China and aggressive US interest rate hikes.

Copper is seen as a barometer of economic health; if the global economy dropped into recession, demand for metals would be dented. Three-month copper on the London Metal Exchange is down over 1% at $8,673 a tonne, Reuters reports , after dropping to its lowest since February 19, 2021, at $8,564. 50.

16m ago 03. 29 The pound is also weaker this morning, dropping by half a cent against the US dollar to $1. 22.

18m ago 03. 27 Recession fears weigh on markets A recession would put fresh strain on the UK public finances , knocking tax revenues and pushing up welfare spending. And worries about an economic downturn have knocked European stock markets at the start of trading.

In London, the FTSE 100 index has shed 70 points, or 1%, to 7018 points, back towards last week’s three-month low. Mining companies are among the fallers. Germany’s DAX has lost 0.

5%, with France’s CAC 0. 6% lower and Italy’s FTSE MIB down 1%. 🔔 European Opening Bell 🔔 🇬🇧 FTSE 100 down 0.

5% 🇪🇺 STOXX 50 down 0. 7% 🇪🇺 STOXX 600 down 0. 7% 🇩🇪 DAX down 0.

4% 🇫🇷 CAC 40 down 0. 6% pic. twitter.

com/peNzOHy3lV — PiQ  (@PriapusIQ) June 23, 2022 Investors fear that interest rate increases to fight inflation could tip economies into recessions. Yesterday, US central bank chief Jerome Powell said the Federal Reserve was fully committed to bringing prices under control, even if doing so risked an economic downturn. Ipek Ozkardeskaya , senior analyst at Swissquote Bank , explains: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Market optimism couldn’t survive to Jerome Powell’s testimony yesterday, as he said that a recession is possible, and that calling a soft landing is ‘very challenging’ under the current circumstances. More worryingly, Powell mentioned another risk: the risk of the Federal Reserve not managing to restore price stability and allowing inflation to get entrenched in the economy.

Updated at 03. 28 EDT 30m ago 03. 15 The larger-than-expected rise in public borrowing in May is an early blow for the government on a day when it is expected to lose two by-elections , says Paul Dales of Capital Economics: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} What’s more, the combination of a further weakening in economic activity and more interest rates rises will probably mean that borrowing overshoots the OBR’s 2022/23 forecast of £99bn by at least £10bn. That will limit the ability of the Chancellor to cut taxes and/or provide more grants to households when the cost of living crisis worsens later this year.

33m ago 03. 12 Here’s Bloomberg’s take : . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} The UK government borrowed more than forecast in May after a 70% surge in interest payments to service the national debt. The budget deficit stood at £14 billion, £2 billion higher than economists had forecast. Overall government spending was higher than the Office for Budget Responsibility predicted in March, and receipts lower.

Higher interest rates and inflation boosted the money the Treasury spends to service its debt to £7. 6 billion, the most for any May on record, from £4. 5 billion a year earlier.

The OBR is forecasting a surge to £19. 7 billion in June. The UK government borrowed more than forecast in May, highlighting risks to the public finances as the cost of living crisis threatens to push the economy into recession https://t.

co/OekfbdRm2D — Bloomberg (@business) June 23, 2022 38m ago 03. 07 Public finances ‘off to a bad start’ this year Martin Beck, chief economic advisor to the EY ITEM Club, says the public finances have made a bad start to the financial year, and could get worse. .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Although the May data showed central government current receipts continuing to grow strongly, the rise was not as robust as the OBR had anticipated. Similarly, the fall in central government spending was less steep than the OBR expected, with the impact of very high inflation on debt interest payments a factor.

“With April’s outturn revised up significantly, fiscal year 2022-2023 has got off to a disappointing start – borrowing over the first two months of the fiscal year was £6. 4bn above the OBR’s forecast. The borrowing data is notoriously revision-prone, so this picture could change.

But a further decline in the public finances looks likely as we move through the fiscal year. A slowdown in economic growth could also hit tax revenues, Beck adds: . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Growth in receipts is likely to come under increasing pressure from faltering activity At the same time, government spending is set to come in well ahead of the OBR’s March forecast given that inflation and interest rates will be much higher, and the cost of the Government’s recent fiscal support package is yet to be incorporated into the OBR’s forecasts. As a result, the EY ITEM Club expects borrowing to come in some way above the OBR’s March projection. 51m ago 02.

54 Sunak: Rising inflation and debt interest costs challenge the public finances Chancellor of the Exchequer, Rishi Sunak, has warned that rising inflation is a challenge to the public finances: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets.

“That is why we are taking a balanced approach – using our fiscal firepower to provide targeted help with the cost of living, while remaining on track to get debt down. “Being responsible with the public finances now will mean future generations aren’t burdened with even higher debt repayments, and we can secure our economy for the long term. ” As this chart shows, UK borrowing is running ahead of forecasts this financial year ( since April), and is higher than before the pandemic: UK government borrowing Photograph: ONS 1h ago 02.

49 The cost of servicing UK government debt has increased considerably in recent months as inflation pushes up the interest paid to holders of RPI index linked gilts, explains Fraser Munro, public sector finance statistician at the ONS . He’s pulled together the key points from May’s borrowing figures : In May 2022, the public sector spent more than it received in taxes and other income, requiring it to borrow £14. 0 bn, £4.

0 bn less than in May last year and the third-highest May borrowing on record. This thread provides the story behind the headlines. https://t.

co/4v9zRKGQE3 pic. twitter. com/NMkVqY9bQH — Fraser Munro (@Fraser_ONS_PSF) June 23, 2022 Central government income was £66.

6 bn in May 2022, £5. 7 bn more than in May last year. These receipts include £48.

3 bn in taxes and £14. 4 bn in compulsory social contributions (largely National Insurance payments). pic.

twitter. com/EpdUOeDz11 — Fraser Munro (@Fraser_ONS_PSF) June 23, 2022 Central government current (or day-to-day) spending was £74. 0 bn in May 2022, £2.

2 bn less than in May last year, with a £3. 1 bn rise in debt interest being offset by a £4. 9 bn fall in subsidy payments.

pic. twitter. com/F36imunTZm — Fraser Munro (@Fraser_ONS_PSF) June 23, 2022 The cost of servicing government debt has increased considerably in recent months as inflation pushes up the interest paid to holders of RPI index linked gilts.

OBR expect interest payments to hit £19. 7 bn in June, dwarfing the previous record of £9. 1 bn recorded in June 2021.

pic. twitter. com/vDeIt7rAkn — Fraser Munro (@Fraser_ONS_PSF) June 23, 2022 The additional borrowing in April has pushed the financial year-to-date total up to £35.

9 bn. Although £6. 4 bn less than in the same period last year, borrowing is £19.

8 bn more than in the same period in pre-pandemic 2019. pic. twitter.

com/ijlMpSofBr — Fraser Munro (@Fraser_ONS_PSF) June 23, 2022 1h ago 02. 37 Introduction: Rising debt costs add to UK borrowing in May Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets. The UK government borrowed more than expected to balance the books last month, as rising inflation pushed up the cost of servicing the national debt.