Record inflation drives UK borrowing to £14bn in May

Government borrowing hit £14 billion in May 2022, representing a £4 billion decrease against 2021 levels, however the borrowing rate was £8.5 billion higher than pre-pandemic levels in May 2019.

The Office of National Statistics (ONS) reported £66.6 billion in central government receipts, representing a year-on-year rise of £3.4 billion, including £48.3 billion in tax receipts.

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The report confirmed a central government current expenditure fall of £2.2 billion to £74 billion against May 2021, with the additional £3.1 billion of cost debt interest repayments made in the year-to-date offset by a reduction of £4.9 billion in paid subsidies.

Central government debt hit £7.6 billion, with the RPI on index-linked gilts contributing £5 billion over and above the accrued coupon payments and other components of debt interest.

According to the ONS, May saw the third-highest debt interest payment made by central government in any single month and the highest payment made in any May on record.

“There is nowhere inflation is not making its presence felt and the hike in interest payments on the government’s debt mountain is a prime example – a hike of 70% compared to the same period last year, a record for the month thanks to all those index-linked gilts,” said AJ Bell financial analyst Laura Suter.

“With inflation already at a 40-year high and the expectation that the peak is still to come, the OBR is forecasting that the cost of servicing the debt will hit £87bn this financial year, a cautionary note that is undoubtedly stuck to every whiteboard in the Treasury.”

Public sector net borrowing excluding public sector banks (PSNB ex) dropped £6.4 billion to £35.9 billion year-on-year, however the level was £19.8 billion higher than May 2019.

The ONS announced a central government net cash requirement drop of £12.3 billion to £11.5 billion in May, bringing the total for the financial year to May 2022 to £13.9 billion.

The report added that PSND ex was £2,363.2 billion at the end of May, with an increase of £170.1 billion. The total represented approximately 95.8% of GDP with an increase of 0.5% compared to May 2021.

The ONS also noted PSND ex excluding the Bank of England (PSND ex BoE) rose by £88 billion to £2,041.8 billion, representing around 82.8% of GDP and a reduction of 2.1% GDP year-on-year.

“People are feeling the pinch, the Government has already stepped in with billions of pounds worth of support but there are plenty of voices warning that the help might not be enough to get households through what could be a long, cold winter,” said Suter.

“Pay is the topic du jour and one that’s not going to go away. Employers are in a sticky situation, if they don’t offer their workforce an increase that covers the worst of the inflation uplift they risk good people jumping ship or becoming embroiled in drawn out disputes that spill over into strike action.”

“What is responsible – helping people now or helping the people in the future? The past couple of years have been trying and expensive but the next months are shaping up to be more uncomfortable than anything Covid threw at us.”

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