Britain’s public sector borrowing hit £19.1 billion ($26.64bn) in February – the highest borrowing for the month since records began - when much of the country was enduring its third national lockdown to curb the spread of Covid-19.
The budget deficit in the first 11 months of the financial year soared to almost £279bn, the highest level since the Second World War and almost six times the amount borrowed in the same period a year earlier, according to the Office for National Statistics.
However, the UK’s deficit is likely to come in below an estimate set by the Office for Budget Responsibility of £355bn unless there is a surge in borrowing this month.
UK finance minister Rishi Sunak said coronavirus has caused one of the “largest economic shocks this country has ever faced,” with the £352bn support package to protect jobs and businesses “the fiscally responsible thing to do”.
“But I have always said that we should look to return the public finances to a more sustainable path once the economy has recovered and at the Budget I set out how we will begin to do just that, providing families and businesses with certainty,” Mr Sunak said in a statement on Friday.
Britain's gross domestic product contracted almost 10 per cent last year – the worst fall in 300 years - after non-essential shops and businesses were forced to close at the start of the crisis.
Net debt climbed to £2.13 trillion, to 97.5 per cent of GDP, in February, the highest level since the early 1960s, with Mr Sunak's budget statement on March 3 setting out tax rises to help balance the books including a rise in corporation tax to 25 per cent.
Mr Sunak also extended the furlough scheme for those out of work because of coronavirus, with the government spending £3.9bn on job support measures alone last month.
Meanwhile, tax receipts were £1.5bn lower than in February last year due to dwindling revenue from VAT, business rates and fuel duty.
The government said on Friday it would receive £1.1bn from selling part of its holding in NatWest Group, with the bank buying back 591 million shares.
The government said the move represents an important step in its plan to return institutions brought into public ownership as a result of the 2007-2008 financial crisis to private ownership.
Separately, the Institute for Fiscal Studies said Mr Sunak's handling of the Covid crisis in this month's budget saw spending cuts that were "simply unrealistic" with borrowing or taxes set to "be higher than planned."
However, Thomas Pugh, UK economist at Capital Economics said with borrowing for the full financial year likely to come in around £20bn below the OBR’s forecast, Mr Sunak will not need to take drastic measures in the future.
“The fiscal forecasts further ahead are predicated on overly pessimistic forecasts for GDP growth,” Mr Pugh said.
“If we are right, borrowing may also be lower than the OBR expects over the next few years, allowing the Chancellor to cancel some of the proposed tax hikes before the 2024 general election.”