Living cost payments and inflation lead to UK budget deficit widening in February

 

Britain's budget deficit in February was larger than expected, official data showed on Thursday, driven by living cost payments and the impact of past inflation on public finances. Public sector net borrowing (excluding state banks) was 8.4 billion pounds ($10.74 billion) last month, down from 11.84 billion pounds a year ago, the Office for National Statistics (ONS) said. The reading was higher than expected by any economist in a Reuters poll, which showed a deficit of about 5.95 billion pounds.

         

With a national election expected before the end of the year, the figures underscore how limited the next government's scope is to provide funding to shore up Britain's flagging economy. The Office for National Statistics said government spending was boosted by £2bn of living cost payments to households under existing schemes. Inflation also increases the value of social welfare spending and tax revenues – especially income tax and corporate taxes.

The data showed Treasury Secretary Jeremy Hunt expected to meet the Office for Budget Responsibility's (OBR) borrowing forecast for 2023/24. Hunt's Conservative Party trails the opposition Labor Party in opinion polls. With only one month left before the 2022/23 fiscal year, the cumulative budget deficit for this fiscal year is 106.8 billion pounds, a 4.1% decrease from the first 11 months of 2022/23.

Earlier this month, the OBR forecast a budget deficit of £114.1bn for 2023/24, meaning a further £8bn deficit in March would be enough to meet this forecast. The prospect of an April 2024/25 start looks trickier.