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Report Shows Government Borrowing in February Exceeded Expectations

The overshoot occurred due to an increase in central government spending, driven partly by a rise in social benefits and cost-of-living payments.

Official data shows that public sector net borrowing in February exceeded expectations, primarily due to higher social benefits and cost-of-living payments.

The Office for National Statistics (ONS) reported that in the previous month, the public sector spent more than it earned, resulting in borrowing of £8.4 billion, surpassing the forecast of £6 billion by economists.

Economists suggest that this could lead to exceeding the official borrowing forecasts from the Office for Budget Responsibility (OBR) for the fiscal year.

Ruth Gregory, Deputy Chief UK Economist at Capital Economics, mentioned that to meet the OBR’s full-year forecast of £114 billion, borrowing in March would need to be just £7.2 billion, which seems unlikely given past borrowing trends.

Furthermore, last month’s borrowing was £3.4 billion lower than in January 2023, as noted by the statistics office.

Senior ONS statistician Jessica Barnaby highlighted that this marked the fourth consecutive month with lower borrowing than the previous year, attributed to higher tax receipts compared to spending.

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“Borrowing for this financial year has been the lowest in four years,” stated Ms. Barnaby. “Debt levels relative to our economy remain similar to those of the early 1960s,” she added.

The ONS further disclosed that central government tax receipts reached £86.4 billion in February, showing a £7.2 billion increase from the previous year, attributed to higher tax payments by businesses and individuals.

This increase in revenue included £3.5 billion from income tax, £1.9 billion from corporation tax, and £600 million from VAT, alongside a £400 million contribution from compulsory social contributions, primarily national insurance.

Increased Spending

In February, central government spending totaled £89.6 billion, up by £2.9 billion from the same period last year.

The ONS noted that this increase was partially due to a rise in social benefits by £5.9 billion to reach £25 billion, driven by inflation-linked benefits and approximately £2 billion in cost-of-living payments.

Responding to the statistics, Chief Secretary to the Treasury Laura Trott emphasized the necessity of substantial government support provided during the pandemic and energy crisis but stressed the importance of financial prudence for future generations.

Bank of England Keeps Interest Rates on Hold

On the same day, the Bank of England (BoE) opted to maintain existing interest rates.

Bank Governor Andrew Bailey highlighted positive signs of decreasing inflation but emphasized the need for caution to ensure a return to the 2 percent inflation target.

While indicating progress, Mr. Bailey stated that further improvements were necessary, particularly in reducing more persistent inflation-related elements, such as services.

A general view of the Bank of England in London on Sept. 21, 2023. (Aaron Chown/PA Wire)
A general view of the Bank of England in London on Sept. 21, 2023. (Aaron Chown/PA Wire)

The Bank of England’s task is to manage inflation through interest rate adjustments, aiming to stabilize prices.

Chancellor of the Exchequer Jeremy Hunt expressed confidence that inflation would reach the 2 percent target soon, citing positive trends in lowering inflation rates.

Mr. Hunt acknowledged improvements in food prices and other sectors, underlining the potential for economic growth and further tax reforms to enhance work incentives.

In his final budget before the general election, Mr. Hunt announced a reduction in national insurance contributions, providing relief to taxpayers.

PA Media contributed to this report.

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