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UK borrowed £14bn in May as inflation drove up interest debt costs – business live | Business


Introduction: Rising debt prices add to UK borrowing in Might

Good morning, and welcome to our rolling protection of enterprise, the world economic system and the monetary markets.

The UK authorities borrowed greater than anticipated to stability the books final month, as rising inflation pushed up the price of servicing the nationwide debt.

Might’s public funds, simply launched, present that the general public sector spent greater than it acquired in taxes and different earnings. This required it to borrow £14bn, £3.7bn greater than the impartial Workplace for Price range Duty (OBR) forecast — and forward of Metropolis forecasts of a £12bn month-to-month deficit.

That’s £4bn much less than a yr in the past, as a result of drop of pandemic spending such because the furlough scheme, and Check and Hint. But it surely’s £8.5bn extra than in Might 2019, earlier than the coronavirus (COVID-19) pandemic.

As this chart exhibits, it’s the third-highest Might borrowing on report (after 2020 and 2021).

UK authorities borrowing {Photograph}: ONS

Tax take elevated year-on-year reflecting the reopening of the economic system; Worth Added Tax revenues have been up 10%, and Enterprise Charges bringing in 13% greater than a yr in the past. That helped to carry tax receipts to £48.3bn, an annual enhance of £3.4bn.

However curiosity funds on the UK nationwide debt jumped by 70% in contrast with a yr earlier. Britain spent £7.6bn on debt repayments, round £3.1bn greater than a yr in the past when it price £4.5bn.

That’s as a result of the funds on some UK authorities debt, or gilts, are linked to the retail costs index measure of inflation (which hit 11.7% final month, we realized yesterday). In order the price of residing will increase, so does the curiosity invoice on the nationwide debt.

The ONS says:

On an accrued foundation, this month noticed the third highest debt curiosity cost made by central authorities in any single month and the best cost made in any Might on report.

UK borrowing
UK borrowing {Photograph}: ONS

Might’s borrowing lifted the nationwide debt (excluding public sector banks) to £2.36 trillion, or round 95.8% of GDP.

Michal Stelmach, senior economist at KPMG UK, warns that “debt discount this yr stays an extended shot”, given Rishi Sunak’s £15bn price of residing assist package deal will add to borrowing.

“The tempo of deficit discount is ready to sluggish over the approaching months, with the federal government’s newest package deal of price of residing measures offering a internet fiscal loosening price 0.4% of GDP in 2022-23. We anticipate borrowing to overshoot the OBR’s March forecast by round £20bn this yr, largely on account of upper spending and weaker financial progress.

“The debt profile will rely upon the financial outlook which faces acute draw back dangers within the close to time period, whereas rising demand for healthcare coupled with falling working-age participation may additionally impede fiscal sustainability. We now anticipate public sector debt to peak in 2023-24, lacking the OBR’s March forecast by two years.

Additionally developing right now

New surveys of buying managers within the UK, eurozone and US will present whether or not progress is slowing this month, as worries a couple of potential recession rise.

Thousands and thousands of UK rail passengers confronted one other day of disruption as this week’s second strike begins. The rail business is asking individuals to solely journey if mandatory right now, with fewer than one in 5 trains in Nice Britain anticipated to run.

With UK inflation hitting a 40-year excessive of 9.1% final month, industrial unrest may unfold as the federal government faces extra requires pay rises that replicate the price of residing.

The nation’s largest instructing union is warning of strike motion this autumn with out an “inflation plus” deal.

Norway’s central financial institution is anticipated to lift rates of interest, from 0.75% to 1%, whereas the Central Financial institution of the Republic of Turkey may go away charge on maintain at 14%.

The agenda

  • 7am BST: UK public funds for Might
  • 9am BST: Eurozone ‘flash’ PMI survey of producing and providers for June
  • 9am BST: Norges Financial institution rate of interest determination
  • 9.30am BST: UK ‘flash’ PMI survey of producing and providers for June
  • 11am BST: CBI distributive trades survey of UK retail
  • Midday BST: Turkish central financial institution rate of interest determination
  • 1.30pm BST: US weekly jobless claims report
  • 2.45pm BST: US ‘flash’ PMI survey of producing and providers for June

Full story: UK borrowed £14bn in Might as inflation drove up curiosity debt prices

Phillip Inman

Phillip Inman

Authorities borrowing was greater than anticipated in Might at £14bn as hovering inflation despatched curiosity funds on the UK’s debt to a month-to-month report, my colleague Phillip Inman writes:

The Workplace for Nationwide Statistics (ONS) mentioned debt curiosity funds leapt 70% on a yr in the past to £7.6bn, the third highest debt curiosity cost made by central authorities in any single month and the best cost in Might on report.

Some economists mentioned the rise in borrowing and the UK’s slowing economic system was prone to push authorities borrowing £20bn greater this yr than the Workplace for Price range Duty (OBR), the Treasury’s impartial forecaster, anticipated at its final estimate in March.

Paul Dales, chief UK economist on the consultancy Capital Economics, mentioned:

“With the economic system weakening and rates of interest rising, the general public funds will in all probability carry out worse this yr than the OBR forecast.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, mentioned the additional spending by the federal government to guard low-income households and pensioners from inflation would additionally dent the general public funds within the second half of the monetary yr.

“Accordingly, we expect that public borrowing will complete about £130bn this yr, effectively above the OBR’s £99bn forecast.

June’s ‘flash PMI’ report exhibits that the eurozone economic system is slowing quick, explains Chris Williamson, chief enterprise economist at S&P International Market Intelligence:

“Eurozone financial progress is displaying indicators of faltering because the tailwind of pent-up demand from the pandemic is already fading, having been offset by the price of residing shock and slumping enterprise and shopper confidence.

Excluding pandemic lockdown months, June’s slowdown was essentially the most abrupt recorded by the survey because the top of the worldwide monetary disaster in November 2008.

The slowdown means the most recent information sign a charge of GDP progress of simply 0.2% on the finish of the second quarter, down sharply from 0.6% on the finish of the primary quarter, with worse prone to come within the second half of the yr. Inflows of recent enterprise have stalled, led by a hunch in demand for items and diminished demand for providers from cash-strapped customers specifically.

Eurozone enterprise progress slumps as rising costs hit companies

Euro zone enterprise progress has slowed sharply to a 16-month low, as demand stalled and rising costs hit buyer spending.

S&P International’s flash Composite Buying Managers’ Index (PMI) has slumped to 51.9 in June from 54.8 in Might, weaker than anticipated, and the bottom degree since February 2021.

Manufacturing output contracted for the primary time in two years and repair sector progress cooled, notably for consumer-facing providers.

It will reinforce issues that rising costs may push the eurozone into recession, after inflation hit a report excessive of 8.1% in Might.

Eurozone progress slumped to a 16-month low in June, in accordance with #PMI flash estimates, with the headline index dropped to 51.9 (Might: 54.8). Demand ranges stalled while items manufacturing fell for the primary time in 2 years. Learn extra: https://t.co/C8Mzmh43EW pic.twitter.com/3rfCVEmTSB

— S&P International PMI™ (@SPGlobalPMI) June 23, 2022

An index of recent enterprise dropped to a 16-month low of fifty.0 — the dividing line between progress and contraction.

With progress slowing, firms scaled again their expectations for output over the approaching yr to the bottom since October 2020 – simply earlier than the primary Covid-19 vaccine outcomes.

The report says:

Each the stagnation of demand and worsening outlook have been broadly blamed on the rising price of residing, tighter monetary circumstances and issues over vitality and provide chains linked to the Ukraine conflict and ongoing pandemic disruptions.

Value pressures in the meantime remained elevated at ranges not seen previous to the pandemic, although a moderation of price progress for a 3rd successive month hinted at a peaking within the charge of inflation.

Flash PMI information out of Europe this morning is grim, with the French and German metrics coming in under the analyst forecast vary, just about. $EUR pressured forward of the discharge of the Eurozone-wide metrics in round 30 minutes.

— Newsquawk (@Newsquawk) June 23, 2022

Personal sector progress in each Germany and France has slowed sharply this month, which can gasoline issues that Europe’s economic system is faltering.

In France, progress has slumped to its weakest because the peak Omicron disruption at begin of 2022, the most recent survey of buying managers exhibits.

In Germany, progress slowed for the fourth month in a row to a six-month low, signalling a “sustained lack of momentum within the non-public sector economic system”.

We get the eurozone-wide PMI report in about 20 minutes….

The copper value has dropped to a 16-month low this morning, as issues rise over an increase in Covid-19 instances in key shopper China and aggressive US rate of interest hikes.

Copper is seen as a barometer of financial well being; if the worldwide economic system dropped into recession, demand for metals can be dented.

Three-month copper on the London Metallic Change is down over 1% at $8,673 a tonne, Reuters stories, after dropping to its lowest since February 19, 2021, at $8,564.50.

The pound can also be weaker this morning, dropping by half a cent in opposition to the US greenback to $1.22.

Recession fears weigh on markets

A recession would put recent pressure on the UK public funds, knocking tax revenues and pushing up welfare spending.

And worries about an financial downturn have knocked European inventory markets firstly of buying and selling.

In London, the FTSE 100 index has shed 70 factors, or 1%, to 7018 factors, again in the direction of final week’s three-month low. Mining firms are among the many fallers.

Germany’s DAX has misplaced 0.5%, with France’s CAC 0.6% decrease and Italy’s FTSE MIB down 1%.

🔔 European Opening Bell 🔔

🇬🇧 FTSE 100 down 0.5%

🇪🇺 STOXX 50 down 0.7%

🇪🇺 STOXX 600 down 0.7%

🇩🇪 DAX down 0.4%

🇫🇷 CAC 40 down 0.6% pic.twitter.com/peNzOHy3lV

— PiQ  (@PriapusIQ) June 23, 2022

Traders worry that rate of interest will increase to struggle inflation may tip economies into recessions. Yesterday, US central financial institution chief Jerome Powell mentioned the Federal Reserve was totally dedicated to bringing costs beneath management, even when doing so risked an financial downturn.

Ipek Ozkardeskaya, senior analyst at Swissquote Financial institution, explains:

Market optimism couldn’t survive to Jerome Powell’s testimony yesterday, as he mentioned {that a} recession is feasible, and that calling a mushy touchdown is ‘very difficult’ beneath the present circumstances.

Extra worryingly, Powell talked about one other danger: the chance of the Federal Reserve not managing to revive value stability and permitting inflation to get entrenched within the economic system.

The larger-than-expected rise in public borrowing in Might is an early blow for the federal government on a day when it’s anticipated to lose two by-elections, says Paul Dales of Capital Economics:

What’s extra, the mix of an additional weakening in financial exercise and extra rates of interest rises will in all probability imply that borrowing overshoots the OBR’s 2022/23 forecast of £99bn by at the least £10bn.

That can restrict the flexibility of the Chancellor to chop taxes and/or present extra grants to households when the price of residing disaster worsens later this yr.

Right here’s Bloomberg’s take:

The UK authorities borrowed greater than forecast in Might after a 70% surge in curiosity funds to service the nationwide debt.

The price range deficit stood at £14 billion, £2 billion greater than economists had forecast. General authorities spending was greater than the Workplace for Price range Duty predicted in March, and receipts decrease.

Increased rates of interest and inflation boosted the cash the Treasury spends to service its debt to £7.6 billion, essentially the most for any Might on report, from £4.5 billion a yr earlier. The OBR is forecasting a surge to £19.7 billion in June.

The UK authorities borrowed greater than forecast in Might, highlighting dangers to the general public funds as the price of residing disaster threatens to push the economic system into recession https://t.co/OekfbdRm2D

— Bloomberg (@enterprise) June 23, 2022

Public funds ‘off to a foul begin’ this yr

Martin Beck, chief financial advisor to the EY ITEM Membership, says the general public funds have made a foul begin to the monetary yr, and will worsen.

Though the Might information confirmed central authorities present receipts persevering with to develop strongly, the rise was not as strong because the OBR had anticipated. Equally, the autumn in central authorities spending was much less steep than the OBR anticipated, with the influence of very excessive inflation on debt curiosity funds an element.

“With April’s outturn revised up considerably, fiscal yr 2022-2023 has obtained off to a disappointing begin – borrowing over the primary two months of the fiscal yr was £6.4bn above the OBR’s forecast. The borrowing information is notoriously revision-prone, so this image may change. However an additional decline within the public funds seems seemingly as we transfer by the fiscal yr.

A slowdown in financial progress may additionally hit tax revenues, Beck provides:

Progress in receipts is prone to come beneath growing stress from faltering exercise

On the identical time, authorities spending is ready to come back in effectively forward of the OBR’s March forecast provided that inflation and rates of interest will probably be a lot greater, and the price of the Authorities’s current fiscal assist package deal is but to be included into the OBR’s forecasts.

Because of this, the EY ITEM Membership expects borrowing to come back indirectly above the OBR’s March projection.

Sunak: Rising inflation and debt curiosity prices problem the general public funds

Chancellor of the Exchequer, Rishi Sunak, has warned that rising inflation is a problem to the general public funds:

“Rising inflation and growing debt curiosity prices pose a problem for the general public funds, as they do for household budgets.

“That’s the reason we’re taking a balanced method – utilizing our fiscal firepower to offer focused assist with the price of residing, whereas remaining on observe to get debt down.

“Being accountable with the general public funds now will imply future generations aren’t burdened with even greater debt repayments, and we will safe our economic system for the long run.”

As this chart exhibits, UK borrowing is working forward of forecasts this monetary yr (since April), and is greater than earlier than the pandemic:

UK government borrowing
UK authorities borrowing {Photograph}: ONS

The price of servicing UK authorities debt has elevated significantly in current months as inflation pushes up the curiosity paid to holders of RPI index linked gilts, explains Fraser Munro, public sector finance statistician on the ONS.

He’s pulled collectively the important thing factors from Might’s borrowing figures:

In Might 2022, the general public sector spent greater than it acquired in taxes and different earnings, requiring it to borrow £14.0 bn, £4.0 bn lower than in Might final yr and the third-highest Might borrowing on report.
This thread supplies the story behind the headlines.https://t.co/4v9zRKGQE3 pic.twitter.com/NMkVqY9bQH

— Fraser Munro (@Fraser_ONS_PSF) June 23, 2022

Central authorities earnings was £66.6 bn in Might 2022, £5.7 bn greater than in Might final yr. These receipts embody £48.3 bn in taxes and £14.4 bn in obligatory social contributions (largely Nationwide Insurance coverage funds). pic.twitter.com/EpdUOeDz11

— Fraser Munro (@Fraser_ONS_PSF) June 23, 2022

Central authorities present (or day-to-day) spending was £74.0 bn in Might 2022, £2.2 bn lower than in Might final yr, with a £3.1 bn rise in debt curiosity being offset by a £4.9 bn fall in subsidy funds. pic.twitter.com/F36imunTZm

— Fraser Munro (@Fraser_ONS_PSF) June 23, 2022

The price of servicing authorities debt has elevated significantly in current months as inflation pushes up the curiosity paid to holders of RPI index linked gilts. OBR anticipate curiosity funds to hit £19.7 bn in June, dwarfing the earlier report of £9.1 bn recorded in June 2021. pic.twitter.com/vDeIt7rAkn

— Fraser Munro (@Fraser_ONS_PSF) June 23, 2022

The extra borrowing in April has pushed the monetary year-to-date complete as much as £35.9 bn. Though £6.4 bn lower than in the identical interval final yr, borrowing is £19.8 bn greater than in the identical interval in pre-pandemic 2019. pic.twitter.com/ijlMpSofBr

— Fraser Munro (@Fraser_ONS_PSF) June 23, 2022

Introduction: Rising debt prices add to UK borrowing in Might

Good morning, and welcome to our rolling protection of enterprise, the world economic system and the monetary markets.

The UK authorities borrowed greater than anticipated to stability the books final month, as rising inflation pushed up the price of servicing the nationwide debt.

Might’s public funds, simply launched, present that the general public sector spent greater than it acquired in taxes and different earnings. This required it to borrow £14bn, £3.7bn greater than the impartial Workplace for Price range Duty (OBR) forecast — and forward of Metropolis forecasts of a £12bn month-to-month deficit.

That’s £4bn much less than a yr in the past, as a result of drop of pandemic spending such because the furlough scheme, and Check and Hint. But it surely’s £8.5bn extra than in Might 2019, earlier than the coronavirus (COVID-19) pandemic.

As this chart exhibits, it’s the third-highest Might borrowing on report (after 2020 and 2021).

UK government borrowing
UK authorities borrowing {Photograph}: ONS

Tax take elevated year-on-year reflecting the reopening of the economic system; Worth Added Tax revenues have been up 10%, and Enterprise Charges bringing in 13% greater than a yr in the past. That helped to carry tax receipts to £48.3bn, an annual enhance of £3.4bn.

However curiosity funds on the UK nationwide debt jumped by 70% in contrast with a yr earlier. Britain spent £7.6bn on debt repayments, round £3.1bn greater than a yr in the past when it price £4.5bn.

That’s as a result of the funds on some UK authorities debt, or gilts, are linked to the retail costs index measure of inflation (which hit 11.7% final month, we realized yesterday). In order the price of residing will increase, so does the curiosity invoice on the nationwide debt.

The ONS says:

On an accrued foundation, this month noticed the third highest debt curiosity cost made by central authorities in any single month and the best cost made in any Might on report.

UK borrowing
UK borrowing {Photograph}: ONS

Might’s borrowing lifted the nationwide debt (excluding public sector banks) to £2.36 trillion, or round 95.8% of GDP.

Michal Stelmach, senior economist at KPMG UK, warns that “debt discount this yr stays an extended shot”, given Rishi Sunak’s £15bn price of residing assist package deal will add to borrowing.

“The tempo of deficit discount is ready to sluggish over the approaching months, with the federal government’s newest package deal of price of residing measures offering a internet fiscal loosening price 0.4% of GDP in 2022-23. We anticipate borrowing to overshoot the OBR’s March forecast by round £20bn this yr, largely on account of upper spending and weaker financial progress.

“The debt profile will rely upon the financial outlook which faces acute draw back dangers within the close to time period, whereas rising demand for healthcare coupled with falling working-age participation may additionally impede fiscal sustainability. We now anticipate public sector debt to peak in 2023-24, lacking the OBR’s March forecast by two years.

Additionally developing right now

New surveys of buying managers within the UK, eurozone and US will present whether or not progress is slowing this month, as worries a couple of potential recession rise.

Thousands and thousands of UK rail passengers confronted one other day of disruption as this week’s second strike begins. The rail business is asking individuals to solely journey if mandatory right now, with fewer than one in 5 trains in Nice Britain anticipated to run.

With UK inflation hitting a 40-year excessive of 9.1% final month, industrial unrest may unfold as the federal government faces extra requires pay rises that replicate the price of residing.

The nation’s largest instructing union is warning of strike motion this autumn with out an “inflation plus” deal.

Norway’s central financial institution is anticipated to lift rates of interest, from 0.75% to 1%, whereas the Central Financial institution of the Republic of Turkey may go away charge on maintain at 14%.

The agenda

  • 7am BST: UK public funds for Might
  • 9am BST: Eurozone ‘flash’ PMI survey of producing and providers for June
  • 9am BST: Norges Financial institution rate of interest determination
  • 9.30am BST: UK ‘flash’ PMI survey of producing and providers for June
  • 11am BST: CBI distributive trades survey of UK retail
  • Midday BST: Turkish central financial institution rate of interest determination
  • 1.30pm BST: US weekly jobless claims report
  • 2.45pm BST: US ‘flash’ PMI survey of producing and providers for June



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