The UK government borrowed less than expected in the first seven months of the financial year as Jeremy Hunt puts the last-minute touches to a series of pre-election giveaways in his autumn statement on Wednesday.
Public sector borrowing between April and October was just above £98bn, according to the Office for National Statistics (ONS), and while this was £22bn higher than in the same period last year, it was almost £17bn less than the Office for Budget Responsibility (OBR) forecast in March.
Some analysts have forecast that the government’s borrowing is on course to be £25bn less than the OBR forecasts by the end of the financial year.
Rishi Sunak said on Monday that his attention was turning to tax cuts after the economy “turned a corner” this year with inflation halved and a resilient labour market handed the Treasury higher than expected tax revenues.
Hunt said bringing down inflation remained one of his main aims.
“We met our pledge to halve inflation, but we must keep on supporting the Bank of England to drive inflation down to 2%. That means being responsible with the nation’s finances.
“At my autumn statement tomorrow, I will focus on how we boost business investment and get people back into work to deliver the growth our country needs.”
His comments are likely to be seen as signalling that concerns inside the Treasury about handing consumers more cash to spend, putting pressure on prices, means there will be only limited tax cuts in the short term and there will be more emphasis on promises of deeper reductions after the election.
The Conservative party is on course to call an election next year and No 10 is understood to be preparing to base much of the campaign on policies it says will improve the economy.
Michal Stelmach, a senior economist at KPMG UK, said the chancellor would have limited room for manoeuvre after an election. An improvement in the public finances was unlikely to last into the next parliament, he said.
“The short-term improvement in the fiscal position this year will likely prove unsustainable over the next five years. While we expect the OBR to revise down its borrowing forecast for 2023-24 by about £22bn, the prospect of persistently higher interest rates is set to more than offset any windfall over the medium term,” he said.
The OBR is also expected to downgrade its growth forecast for the next five years, further limiting the scope for investment while Hunt maintains a rule that means the UK’s debt as a proportion of gross domestic product is falling in the fifth year of the forecast period.
Stelmach added: “As part of the autumn statement, the chancellor will likely declare triumph over meeting his fiscal mandate of falling debt in five years’ time. However, there is a risk that such forecasts will prove unrealistic if they rely on consolidation plans which are subsequently not followed through. Indeed, borrowing has turned out higher than initially forecast in each of the past 20 years, underscoring the gap between fiscal pragmatism and political reality.”
The ONS said that in October, public sector net borrowing, excluding state-owned banks, was £14.9bn last month, driven higher by the cost of inflation-linked government bonds. It was £4.4bn more than in October 2022 and the second highest October borrowing since monthly records began in 1993.
A Reuters poll of economists had expected lower borrowing of £12bn in October.
Total government debt hit £2,64tn, provisionally estimated by the ONS at about 97.8% of the UK’s annual gross domestic product, the highest share of the economy since 1963.