UK Budget Deficit Exceeds Expectations On Energy Support, Debt Costs

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UK Budget Deficit Exceeds Expectations On Energy Support, Debt Costs

(RTTNews) - The UK budget deficit increased more than expected in April on the additional costs of the energy support schemes, inflation-driven debt costs and increases in benefit payments.

Public sector net borrowing excluding banks increased GBP 11.9 billion from the previous year to GBP 25.6 billion in April, the Office for National Statistics reported Monday.

This was the second-highest April borrowing since monthly records began in 1993 and far exceeded economists' forecast of GBP 18.7 billion.

Debt interest payable surged GBP 3.1 billion from a year ago to hit GBP 9.8 billion, the highest April figure on record. Interest payments increased due to the effect of high inflation on the index-linked gilts.

The central government spent GBP 1.8 billion more than in the April 2022 on the energy bill support schemes. At the same time, social benefits paid by the government were GBP 4.5 billion more than in the previous year.

At the end of April, the public sector net debt totaled GBP 2,536.9 billion, which was around 99.2 percent of gross domestic product. The debt-to-GDP ratio has reached levels last seen in the early 1960s. "April's public finances figures got the new fiscal year off to a shaky start," Capital Economics' economist Ruth Gregory said. However, it is unlikely to prevent the Chancellor from embarking on a fiscal splurge ahead of the next general election, due to take place before January 2025, the economist added.

On a positive note, the ONS revised down the public sector net borrowing for the financial year 2022/23 to GBP 137.1 billion from GBP 139.2 billion.

As a result, borrowing was GBP 15.3 billion less than the GBP 152.4 billion forecast by the Office for Budget Responsibility.

Elsewhere, upgrading the UK's growth projections, the International Monetary Fund said it no longer expects the economy to fall into a recession this year.

The Washington-based lender forecast the UK economy to expand 0.4 percent in 2023 compared to the previous forecast of 0.3 percent contraction. GDP is expected to grow 1 percent next year and to average around 2 percent in 2025 and 2026.

The lender cautioned that inflation would remain above the 2 percent target until mid-2025.

The Bank of England will have to keep interest rates higher for longer, the IMF said, and warned against "premature celebrations" in the fight against inflation.

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