LONDON (Reuters) – British government borrowing surged to a record 127.9 billion pounds ($162 billion) in the first three months of the 2020/21 financial year, when COVID-19 lockdown measures were tightest, more than double the total for the whole year before.
Borrowing in June alone, excluding state-owned banks, was 35.5 billion pounds, five times higher than a year earlier though below economists’ average forecast of 41.5 billion pounds in a Reuters poll, following a big downward revision for May.
“Borrowing is still rising at an exceptional rate and we suspect that a slowdown in the recovery and further rise in unemployment later this year will prompt the government to announce additional fiscal spending at the next Budget,” Thomas Pugh, UK economist at Capital Economics, said.
Public sector net debt, excluding state-owned banks, also remained a fraction below the 100% of gross domestic product milestone it appeared to pass in May, after downward revisions, and now stands at 1.984 trillion pounds or 99.6% of GDP.
Britain’s government has announced extra spending and tax cuts worth around 192 billion pounds for this financial year, and last week its Office for Budget Responsibility estimated borrowing would hit 322 billion pounds or just over 16% of GDP, the highest since World War Two.
This figure is based on a scenario where the economy shrinks by 12.4% over 2020, and the unemployment rate rises to its highest since 1984 at 11.9% by the end of this year.
A gloomier scenario, where the economic damage from COVID-19 proves harder to recover from, sees the economy shrinking by 14.3% and borrowing hitting 391 billion pounds.
Last week finance minister Rishi Sunak set out up to 30 billion pounds of further spending, in part to encourage businesses to take workers back when a furlough scheme supporting more than 9 million jobs ends in October.
“The best approach to ensure our public finances are sustainable in the medium-term is to minimise the economic scarring caused by the pandemic,” he said on Tuesday. “I am also clear that, over the medium-term, we must, and we will, put our public finances back on a sustainable footing.”
Bond markets have been happy to finance this borrowing, however. Last week Britain sold a three-year bond with a record-low negative yield – meaning investors will receive back less than they lent – and longer-term borrowing costs are also close a record low.
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