UK government borrowing fell in June as the reopening of the economy after the lockdown resulted in higher tax revenues despite a record increase in debt interest payments to £ 8.7bn amid a backdrop of rising inflation.
The Office for National Statistics (ONS) said the government’s budget deficit – the deficit between spending and income – reached £ 22.8bn in June, a decrease of £ 5.5bn. pounds sterling compared to the same month a year earlier.
However, the latest snapshot revealed the impact on public finances of rising inflation, with interest payments on public debt rising by more than 200% to reach £ 8.7bn, the level highest monthly on record since 1997.
Raising interest payments on debt is likely to become a goal of Rishi Sunak after increased government borrowing during the Covid-19 pandemic pushed debt levels to levels not seen in years 1960.
However, there is also good news for the Chancellor in the June borrowing figures. With consumer spending surging sharply as consumers flocked to stores, pubs and restaurants after the lockdown reopened, tax revenue rose 20% from the same month a year ago.
Overall public borrowing was lower than the forecast of £ 25.5 billion for the month made by the Office for Budget Responsibility in March.
The UK has also made its first payment to the EU under the £ 800million withdrawal deal with Brussels, with similar payments due in the coming months.
The ONS said the fluctuations in interest on debt were largely due to an increase in the retail price index, a measure of inflation, to which index-linked government bonds are indexed, after a sharp rise. increase in recent months.
It comes as some economists warn the UK economy is threatened by spike in inflation amid supply bottlenecks and surging demand for goods and services as restrictions in Covid-19 are relaxed. However, others, including the Bank of England, have said the recent inflationary surge is likely to be temporary.
The ONS said the additional funding required by the government for coronavirus support programs, combined with lower tax revenues and the record economic slowdown, pushed public sector debt to £ 2.2 billion at the end of the day. June, or about 99.7% of GDP – the highest ratio since 1961.
Sunak said the government would continue to support businesses and jobs, but added, “However, it’s also right that we make sure that the debt stays under control in the medium term, and that’s why I made difficult choices in the last budget to put public finances back on a sustainable path.