The Office for National Statistics (ONS) reported that public sector net borrowing was £16 billion in June, a 33.1% decrease compared to the same month last year. This figure came in £300 million below the Office for Budget Responsibility’s (OBR) forecast and £2 billion less than most economists had anticipated for the month.
Lower inflation-linked debt interest costs drive decline
The larger-than-expected drop was largely attributed to lower inflation-linked debt interest costs compared with the previous year. The ONS noted that debt interest costs were £11.8 billion in June, 31% less than the same month last year, though still the fourth highest June on record. This volatility largely reflected fluctuations in gilts linked to the retail prices index (RPI) inflation.
The lower borrowing figure may offer some respite to John Healey, who was appointed Chancellor by new Prime Minister Andy Burnham on Monday. Healey responded to the data by emphasizing that “fiscal control” was his “first duty” as Chancellor and that “fiscal credibility is the bedrock for economic stability and for national security.”
Healey pledges fiscal credibility
“The Prime Minister and I have talked about how we will work in lockstep to meet the fiscal rules with a buffer against uncertainty and how we’ll make life more affordable for working people right across the UK,” Healey added.
Despite the positive news, borrowing between April and June was 1.9% of the UK’s gross domestic product (GDP), representing the 10th highest period since comparable records began in 1993. This indicates that while June’s figures were encouraging, the overall fiscal picture remains challenging.
