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UK government borrowing declined in June as the economy continued to recover from the shock of the pandemic … but interest payments on sovereign debt were driven higher by rising inflation.
Figures published by the National Statistics Officeso This morning it showed that net public sector borrowing (excluding public sector banking costs) fell to £ 22.8 billion last month.
That’s £ 5.5 billion less than June 2020, but still the second highest borrowing in June since monthly records began in 1993.
The ONS reports that June tax revenues were higher than a year ago after parts of the economy reopened earlier this year:
Central government revenues were estimated at £ 62.2 billion in June 2021, an increase of £ 9.5 billion (or 18.0%) from June 2020. Of that revenue, tax revenue increased by £ 8.1 billion (or 21.7%) to £ 45.5 billion.
Public spending rose, in part due to the cost of fighting the pandemic, the ONS says:
Central government departments spent £ 31.1 billion on goods and services in June 2021, an increase of £ 1.7 billion (or 5.7 percent), of which £ 17.7 billion on procurement and £ 12.8 billion for the payment.
These costs include the Department of Health and Welfare (DHSC), decentralized administrations and other departments’ expenses in response to the coronavirus pandemic, including the NHS testing and tracking program and vaccine costs.
Borrowing has also been lower in this financial year than at the time of the first Covid 19 wave.
Since April, the government has borrowed an estimated £ 69.5 billion to offset the books – £ 49.8 billion less than the same period last year (but again the second-highest April-June borrowing on record).
Last year’s record borrowing was also revised down a bit – by £ 1.5 billion to an unprecedented £ 297.7 billion (the highest borrowing since fiscal year records began in 1946).
This means that the national debt is now £ 2,218.2 billion – or about 99.7% of UK GDP, the highest since the 102.5% recorded in March 1961.
The report also shows that interest payments on government debt were £ 8.7 billion in June 2021, the highest monthly payment since April 1997 – up from just £ 2.7 billion in June 2020.
This was mainly due to an increase in the Retail Price Index (RPI) measure of inflation, to which index-linked gilts (government bonds) are linked.
The ONS explains:
Interest on the outstanding index linked gilts of £ 470.7 billion (at redemption value) increased by £ 6.0 billion in June 2021 from June 2020, mainly due to the sharp increase in the RPI between March and April The increase in index-linked gilts delayed by three months will affect impact in 2021.
Public sector finance statistician Fraser Munro has more details:
Reaction follows …
The European stock markets are set for a slightly higher opening price after a small recovery yesterday after the slump on Monday.
- 7 a.m. BST: UK Public Finances for June
- Midday BST: Weekly US Mortgage Approvals
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