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UK public sector borrowing was higher than expected in June, according to official statistics that demonstrate the scale of the challenge facing new chancellor Rachel Reeves to restore the health of the nation’s finances.
Borrowing — the difference between public sector spending and income — was £14.5bn in June, the Office for National Statistics said on Friday. That was £3.2bn less than in June 2023, and the lowest June borrowing since 2019, but higher than the £11.6bn forecast by the Office for Budget Responsibility.
The year-on-year drop was fuelled by higher tax revenues and lower spending from debt interest payments and the ending of energy support schemes.
The figures highlight the challenges for the new Labour government of funding its agenda against the backdrop of high borrowing, and came as separate official data showed retail sales contracted more than expected last month.
Rob Wood, an economist at the consultancy Pantheon Macroeconomics, said: “The new chancellor Rachel Reeves did not get a warm welcome from the government borrowing figures.”
He added: “As it stands Reeves will still likely have to raise taxes in the medium term to cover the need to spend more on public services.”
Public debt, or borrowing accumulated over time, was 99.5 per cent of GDP, remaining at levels last seen in the early 1960s, reflecting higher spending during the pandemic.
Darren Jones, chief secretary to the Treasury, said: “Today’s figures are a clear reminder that this government has inherited the worst economic circumstances since the second world war, but we’re wasting no time to fix it.”
He added: “Fixing the economy’s foundations and restoring stability is the only way we can create growth and put more money back into people’s pockets across the country.”
In the first three months of the fiscal year to June, borrowing was £49.8bn, £1.1bn less than in the same period last year, but £3.2bn more the £46.6bn forecast by the OBR.
The Labour government has ruled out increases in the rates of income tax, corporation tax and VAT, and plans to focus on economic growth, which it is banking on to generate more revenue for the exchequer and reduce pressure on the public finances.
Dennis Tatarkov, economist at the consultancy KPMG UK, said: “A combination of high levels of spending and weak growth prospects will present uncomfortable choices — deciding between even more borrowing or substantially raising taxes if spending levels are to be maintained.”
Sandra Horsfield, economist at Investec, said the biggest challenge for the new government will be to persuade the OBR that Labour’s planned policies will bring about the desired change in gear for GDP growth longer-term. “If so, this would raise the scope to fund the desired improvements in public services.”
On Friday separate official data showed British retail sales contracting more than expected last month.
The quantity of goods bought in Great Britain fell 1.2 per cent between May and June, following a 2.9 per cent expansion in the previous month, the ONS said.
This was a larger fall than the 0.4 per cent contraction forecast by economists polled by Reuters, with the biggest drops registered in department stores, clothing shops and furniture stores.
The ONS said retailers suggested that election uncertainty, poor weather and low footfall affected sales.
In June, sales were 1.3 per cent below their pre-pandemic level in February 2020, even if consumers spent nearly 20 per cent more, reflecting the impact of high inflation on household finances.
Separate data published on Friday by the research company GfK showed consumer confidence rising only 1 point to minus 13 in July, the highest since August 2021.
Joe Staton, client strategy director at GfK, said: “July’s consumer confidence poll suggests a note of caution as people wait to see exactly how the UK’s new government will affect the wider economy and their personal finances.”
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