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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

UK’s public borrowing falls, debt costs rise

A worker pushes a wheelbarrow of debris outside the Bank of England in London,  in this file photo. — AFP
A worker pushes a wheelbarrow of debris outside the Bank of England in London, in this file photo. — AFP
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LONDON: British public borrowing last month was almost a fifth lower than a year earlier, when the economy was feeling the full force of the coronavirus pandemic, but rising inflation put upward pressure on debt costs.


Public sector net borrowing, excluding public sector banks, fell to 22.8 billion pounds ($31.0 billion) in June, still the second-highest June figure on record. Economists polled by Reuters had forecast a drop to 21.6 billion pounds.


Reflecting the surge in borrowing by British finance minister Rishi Sunak to soften the hit from the pandemic, the data showed Britain’s budget deficit leapt to 14.2 per cent of gross domestic product during the financial year to the end of March 2021, its highest share of GDP since World War Two.


“We still expect borrowing to undershoot the OBR’s latest forecast for this year. But we are not out of the woods yet, with the recent surge in Covid-19 cases putting some parts of the economy at risk of further restrictions later in the year,” KPMG economist Michal Stelmach said.


The Institute for Fiscal Studies, a think tank, said in a report with economists from Citi that borrowing in the 2021/22 financial year would drop to 9.3 per cent of GDP. This is 30 billion pounds less than the government’s forecasters expected in March but would still be the third-highest on record.


The Office for National Statistics said June’s debt servicing costs - which include an inflation uplift to index-linked gilts’ future redemption values as well as actual interest payments - rose to a record 8.7 billion pounds.


A rise in the rate of retail price inflation was largely to blame, it added.


However, debt servicing costs as a share of GDP remain low by historic standards, and most economists say the pace of economic recovery will be the key factor in improving the public finances. — Reuters


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