Government borrowing lower than expected in November
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Government borrowing in November was lower than expected, with official figures revealing a decline compared to the same month last year. This was primarily due to a rise in tax revenues and a reduction in the country’s debt interest payments. The UK government’s borrowing for November stood at £11.2 billion, the lowest for that month since 2021. This figure was £3.4 billion less than the same period in 2023, a result that was seen as better than economists’ predictions, which had expected borrowing to be around £13 billion.
One key reason for this positive outcome was the fall in debt interest payments. According to the Office for National Statistics (ONS), debt interest payments decreased by £4.7 billion to £3 billion, largely due to lower inflation. This reduction in debt interest offered temporary relief to the government, which has been grappling with rising costs and weakened economic growth.
In addition to the borrowing figures, other economic indicators showed a mixed picture. Retail sales in November rose by 0.2%, recovering from a 0.7% fall in October. The increase was driven largely by strong supermarket sales, although this was somewhat offset by a decline in clothing sales. However, this data did not capture the impact of Black Friday, which took place at the end of November, and is often a significant period for retail trading.
While the government borrowing data was better than expected, economists warned that the broader economic outlook remains challenging. The UK economy is still struggling, with inflation hitting 2.6% in November, above the Bank of England’s target of 2%. This rising inflation is particularly concerning as it continues to erode consumers’ purchasing power and presents an ongoing challenge for economic growth.
The latest figures also came after the Bank of England announced it would hold interest rates, citing a lack of growth in the economy. The central bank downgraded its growth forecast for the last quarter of 2024 to zero, which is a setback for the government’s growth ambitions. Labour, in particular, has made growing the economy a central part of its platform, and these revisions to the economic outlook could complicate efforts to stimulate growth.
Despite the lower-than-expected borrowing figures, economists noted that the UK government’s fiscal outlook remains precarious. Ruth Gregory, deputy chief UK economist at Capital Economics, highlighted that while the November borrowing data was better than anticipated, it also indicated that the government may face growing pressure to implement tax hikes or make cuts to public spending in the future. As inflation continues to rise and economic growth stagnates, the government’s fiscal space will remain tight, limiting its ability to boost public services and infrastructure without adding to the national debt.
Dennis Tatarkov, senior economist at KPMG UK, also pointed out that while the government had gained some relief from lower debt interest payments in the short term, this trend may not last. Rising inflation could eventually drive debt costs higher, putting more strain on the government’s finances.
The current economic environment is creating uncertainty for the UK government as it attempts to manage its budget. Chancellor Rachel Reeves has already acknowledged the need for infrastructure investment, announcing plans to reform the country’s fiscal rules to free up funds for this purpose. However, Alison Ring, director of public sector and taxation at the ICAEW, warned that despite the investment priorities, the weak economic growth and rising inflation present significant challenges. Money remains tight, and the government’s options to stimulate the economy will be constrained.
The retail sector, meanwhile, remains a reflection of the overall economic mood. November’s retail sales figures showed a slight improvement, but consumer confidence remains low. This lack of confidence is hurting discretionary spending, especially in clothing stores, as households continue to delay purchases. Retailers like Monsoon Accessorize have reported soft demand, especially for winter clothing, as shoppers remain cautious about their spending.
In conclusion, while government borrowing was lower than expected in November, the UK’s economic outlook remains weak. The fall in debt interest payments has provided short-term relief, but inflation and stagnating growth are presenting long-term challenges. As the government grapples with fiscal constraints, there is increasing pressure for further tax hikes or spending cuts. The weak retail performance also suggests that consumer confidence is still low, which could hinder efforts to revive economic growth in the months ahead.
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