UK Budget Deficit Widens On Energy Subsidies, Debt Servicing

UK budget deficit widened to the highest December level on record largely due to a sharp growth in spending on energy support schemes and huge interest payments driven by high inflation.

Public sector borrowing increased by GBP 16.7 billion from the last year to GBP 27.4 billion in December, data published by the Office for National Statistics showed Tuesday.

This was the highest December deficit since monthly records began in January 1993, and also GBP 9.8 billion more than the Office for Budget Responsibility forecast.

The interest payable on the central government debt totaled GBP 17.3 billion, the biggest December figure since monthly records began.

Rising interest payments do not principally reflect increases in the government debt level nor any change in servicing costs driven by large increases in the interest or coupon payments.

Instead, the increase was driven by higher inflation, with the interest payable on the index-linked gilts rising in line with the Retail Prices Index.

Of the GBP 17.3 billion interest payment, GBP 13.7 billion reflects the impact of inflation on the index-linked gilt stock, the ONS said.

In December, the government made the third round of Energy Bills Support Scheme payments, which will end in March. These payments are recorded as subsidies.

In the financial year-to-December, government borrowed GBP 128.1 billion, which was GBP 5.1 billion more than that borrowed in the same period last year.

Forecasts from the OBR indicated that the public sector could borrow an additional GBP 48.9 billion by the end of March 2023.

At the end of December, public sector debt was GBP 2,503.6 billion or around 99.5 percent of gross domestic product.

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