Virus bill sees borrowing hit critical levels

THE GOVERNMENT is close to breaking Britain’s all-time annual record for borrowing after just four months due to the coronavirus pandemic, official data will confirm this week.

The Office for National Statistics is expected to say on Friday that the Government borrowed £28.6 billion to fund its operations during July. Last year Britain recorded a £1.5 billion surplus for the same month.

Economists predict that July will take official borrowing for the current financial year up to £156.4 billion. The deterioration in the public finances is down to the rising cost of the Treasury’s various economic support programmes, such as the furlough and self-employed workers schemes, and tax receipts being hit by the recession.

The all-time borrowing record was set in 2009, when the Labour administration tapped lenders for £160.1 billion to fund the bank bailouts and support the economy.

Howard Archer, chief economic adviser to the EY ITEM Club, said: “The deterioration of public sector finances slowed a little recently and the economy did better in June but a lot of the Government support schemes are still running and are very expensive.”

With unemployment and corporate failures set to rise, along with slower consumer spending hitting the Exchequer’s takings, Archer said the think-tank forecasts that official borrowing for the year will total £335 billion, or 17 per cent of GDP.

Aside from obliterating the record in cash terms, that would also set a new record for annual public sector borrowing as a percentage of GDP. The current record is 10.2 per cent of GDP, which was set in 2010. CMC Markets chief market analyst Michael Hewson said that with the interest rates available to the Government at historic lows and a growing number of firms promising to repay the support funds they have received, Chancellor Rishi Sunak has some room for manoeuvre.

“At some point the UK government will have to look at how they intend to pay for all of this but for now with two- and five-year yields in negative territory and 10-year yields below 0.25 per cent, it isn’t something they need to be too concerned about,” he said.

“We’re expecting to see a big number in July. However, the total doesn’t appear to be rising as quickly as thought. While it won’t stop UK borrowing from moving above 100 per cent of GDP, the Chancellor could well afford to be flexible, given the amounts borrowed haven’t been as high as originally thought.”