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UK government borrowing dropped last month, as the reopening of the economy helped to improve the public finances, with more firms reopening and people returning to work.
The Office for National Statistics reports that public sector net borrowing came in at £24.3bn in May (this is excluding public sector banks).
That’s £19.4bn less than a year ago, when the government had to borrow around £43.8bn as it ramped up spending to fight the pandemic, and the economy was in lockdown.
It indicates that the easing of lockdown restrictions, and the reopening of hospitality venues and non-essential shops this spring, is now feeding through to the public finances.
It’s also the second-highest borrowing figures for the month of May on record.
The ONS reports that tax receipts rose compared to a year ago, while government spending dipped:
- Provisional May 2021 estimates of central government receipts were £56.9 billion, £7.5 billion more than in May 2020, while central government bodies spent £81.8 billion, £10.9 billion less than in May 2020.
In the first two months of this financial year, the UK has borrowed £53.4bn. That’s the second borrowing for April-May on record (after last year), but still 41.4% less (or £37.7bn) than a year ago.
Encouragingly for the chancellor, this is below the official forecasts for borrowing this year from the Office for Budget Responsibility, as this chart shows:
Michal Stelmach, senior economist at KPMG UK, says:
The reduction in spending from its peak at the start of the Covid-19 pandemic meant that government borrowing was down by £38bn in the first two months compared to last year, amounting to over a half of the improvement forecast by the OBR for the whole year.
“It should come as no surprise that borrowing has fared better than expected this year considering the improved economic outlook. We expect the deficit to fall to £211bn this fiscal year, undershooting the OBR’s forecast by around £23bn.
“Spending should continue to recover in the coming months as the economy absorbs more furloughed workers during the reopening phase. The furlough scheme, which the OBR expected to cost nearly £50bn less this financial year, is likely to undershoot that forecast thanks to stronger demand for staff and some companies returning unused cash to the Exchequer.”
The national debt is at its highest level since the early 1960s.
Public sector net debt has now risen to £2,195.8 billion at the end of May 2021 or around 99.2% of GDP — that’s the highest ratio since the 99.5% recorded in March 1962.
Reaction to follow…
European markets are set for a higher open, after rising yesterday.
- 7am BST: Public Sector Net Borrowing for May
- 11am BST: CBI Industrial Trends survey for June
- 3pm BST: Eurozone consumer confidence flash survey for June
- 3pm BST: US existing home sales for May