Britain’s government borrowing was higher than expected in February as the gap between spending and tax receipts hit £13.1 billion, while rising inflation caused interest payments to surge by more than half.
Public sector net borrowing in February was the second highest borrowing for the month, said the Office for National Statistics, and well above the £8.1bn expected by analysts.
“This was £2.4bn less than in February 2021 but still £71.9bn more than in February 2020 before the coronavirus pandemic,” the ONS said.
Borrowing for the first 11 months of the 2021/2022 financial year hit £138.4bn ― less than half of the level seen April 2020 to February 2021, when the public finances were hit by the extensive economic support dished out during the pandemic.
Chancellor of the Exchequer, Rishi Sunak said the ongoing uncertainty caused by global shocks means it is more important than ever to take a responsible approach to the public finances.
“With inflation and interest rates still on the rise, it’s crucial that we don’t allow debt to spiral and burden future generations with further debt,” Mr Sunak said.
“Look at our record, we have supported people ― and our fiscal rules mean we have helped households while also investing in the economy for the longer term.”
The government borrowing figures come before Mr Sunak’s Spring Statement on Wednesday when the focus is expected to be on how he can ease the cost of living pressure on households and businesses before an increase in taxes comes into force in April.
Laith Khalaf, head of investment analysis at AJ Bell, said the higher than expected tax receipts will open up some fiscal space for the Chancellor to provide UK households with help to manage the rising cost of living.
"Government borrowing so far this year is £25.9 billion below the last official OBR forecast, and half the level it stood at last year, at ‘only’ £138.4bn," Mr Khalaf said.
“Inflation has helped propel tax receipts higher, on top of a recovery from the lockdown economy of the previous financial year. But inflation giveth, and inflation taketh away.
"So far this fiscal year interest payments on government debt have rocketed from £37.5bn to £67bn, partly as a result of higher coupons being paid on the £500 billion of inflation-linked gilts it has issued.
"That effectively means that around half the money the government is currently borrowing is being used to service its debt, which is a precarious position for any Chancellor."
Paul Dales, chief UK economist at Capital Economics, said Mr Sunak faces the immediate challenge of solving the living costs crunch for households but also the medium-term goal “of wanting to stay ahead of the 2024 election that he has managed the public finances more conservatively than Labour”.
While Mr Sunak will want to find wiggle room to help ease the cost-of-living crisis, soaring inflation pushed up interest payments on government debt by more than 50 per cent to £8.2bn.
Inflation hit 5.5 per cent in January, taking prices to a fresh 30-year high, but it is expected to jump even higher in February and surge past 8 per cent from April when higher taxes and energy bills come into force.
Meanwhile, public sector net debt excluding public sector banks hit £2.3 trillion at the end of February, or about 94.7 per cent of gross domestic product, maintaining a level not seen since the early 1960s.
