UK budget deficit soars on cost of debt, energy support

The budget deficit stood at £22 billion ($26.8 billion) – the highest monthly total in records stretching back to 1993 and almost triple the £8.1 billion reading a year ago, the Office for National Statistics said Wednesday. Economists had forecast a shortfall of £14.8 billion.

Until recently, borrowing had been on a downward trend as the recovery from the pandemic boosted tax receipts and reduced Covid-related spending. The improvement has now gone into reverse, however, with budget officials predicting 2022-23 as a whole will see the second-highest deficit in a decade.

Rise in borrowing was driven by the massive surge in spending on household energy support and debt interest. The combined cost of all the energy support programs, including the price cap, was around £7 billion for the month of November alone.

The shortfall in the first eight months of the fiscal year climbed to £105 billion, the fourth highest on record. The Office for Budget Responsibility expects the total to reach £177 billion for the full 12 months. At more than 7.1% of GDP, that would represent the biggest fiscal gap since 2012-13, leaving aside the pandemic when the deficit hit a peacetime high.

The deterioration reflects the toll being taken by the highest inflation in four decades. The damage to the public finances is forecast to persist, with government debt expected to spend the coming years above 100% of GDP despite the £55 billion of tax rises and spending cuts announced by Chancellor Jeremy Hunt last month. Bloomberg