UK government borrowing shows first annual fall

26 May, 2021 12:00 AM printer

LONDON: UK public sector borrowing showed its first annual fall since the start of the pandemic in April, dropping to £31.7 billion ($45.01bn) as parts of the economy reopened from a third lockdown.

Government borrowing was down from the £47.3bn registered in April last year when the first Covid-19 shutdown hammered the country’s public finances, according to the Office for National Statistics, however the figure was still the second highest for April since records began, report agencies.

Chancellor of the Exchequer Rishi Sunak said the government will continue its package of support to help businesses and workers “get back on their feet”.

“At the Budget, I set out the steps we are taking to keep the public finances on a sustainable footing by bringing debt under control over the medium term. But we also need to focus on driving a strong economic recovery from the pandemic,” Mr Sunak said in a statement on Tuesday.

The government has spent heavily over the past year on job support and health measures to prop up the economy during the crisis and prevent unemployment from soaring out of control. Borrowing in the 2020/21 financial year hit £300.3bn, or 14.3 per cent of annual economic output, the highest share on this measure since the end of the Second World War, but the figure was £2.8bn lower than an initial estimate a month ago.

While public sector net debt continued to creep up from 97.4 per cent of gross domestic product in March to 98.5 per cent in April, the £31.7bn was comfortably lower than the Office for Budget Responsibility’s forecast of £39bn.

Ruth Gregory, senior UK economist at Capital Economics, said the borrowing undershoot is likely to continue.

“April’s public finances figures showed that the government’s financial position isn’t as bad as the OBR predicted only two months ago, reinforcing our view that the tax hikes and spending cuts that most fear may be avoided,” said Ms Gregory.

Borrowing in 2021-22 is still expected to total more than £200bn, or 10 per cent of GDP, but whether Mr Sunak can deliver on his pledge to balance day-to-day spending and revenue by the middle of the decade without further tax increases will depend on the cost of future spending related to the virus.

The economy has already shown signs of a strong rebound, with business activity in the country hitting its highest level on record in May and retails sales soaring 9.2 per cent in April as consumers splurged some of their lockdown savings.