Government borrowing rises because of higher debt interest, as retail sales drop and pound falls close to one-week low, wiping out rally after Liz Truss resignation
Ruth Gregory, senior UK economist at Capital Economics, neatly sums up the situation:
The weakness in retail sales and overshoot of the Office for Budget Responsibility’s March public borrowing forecast won’t make the next prime minister’s task any easier in navigating the economy through the cost of living crisis, cost of borrowing crisis and the cost of credibility crisis…
Expenditure of £79.3bn [in September] was far higher than the £73.6bn the OBR forecast, as the surge in RPI inflation contributed £4.7bn to the £7.7bn rise in debt interest payments…
But only a small part of the fiscal policy support announced for 2022-23 has so far fed into borrowing. Notably, the cost of the Energy Price Guarantee (EPG) and the cap on businesses’ energy bills will not affect spending until this month. November will then see revenues reduced by the cut in national insurance contributions.
However, the decision to reverse almost all the other tax cuts of September’s mini-Budget and limit the EPG to six months means borrowing will come in significantly less in 2023-24 than was being predicted only a week or so ago. The prospect of tax rises and spending cuts in the forthcoming fiscal statement point in the same direction.
