In a groundbreaking revelation, the UK Government’s borrowing – the difference between income from taxes and government spending, has hit 14.5% of the GDP, the highest since the end of The Second World War.
The Government Borrowing reached a figure of 303.1 Billion GBP this March, as informed by the UK Office for National Statistics (ONS). Compared to March last year, the borrowings are 250 GBP higher. The Director of The Institute for Fiscal Studies, Paul Johnson stated that while the figure in itself was a record high, it was still better than the anticipated level of around 400 Billion GBP. He attributed the great difference between the Year – on – Year figures to the active government decision to support incomes during the pandemic which, accounted for around 200 Billion GBP worth of spending & reduction in taxes. He anticipates that the figure will only rise due to the default of some COVID support loans.
The levels are predicted to remain high as job support will continue in the UK at least till autumn and, the government is incentivizing investments in machinery and plants for industries by way of massive tax cuts.
To put it in terms of figures, measures to support individuals and businesses during the COVID pandemic accounted for a 27.5% increase in daily spending for the government.
In parallel, the tax and National Insurance receipts fell by approximately 35 Billion GBP, a downfall of 5% compared to the last 12 months. To point toward the significance of where the government stands from a fiscal standpoint, the net public sector debt has reached 2.142 Trillion GBP – which is 97.7% of the GDP.
In spite of such high figures, Michal Stelmach, a senior economist at KPMG UK, stated, “Rising debt is largely an unfortunate consequence of the government’s focus on shielding the economy as much as possible from the impact of Covid-19. However, doing otherwise could have created long-lasting scars which would be far worse for fiscal sustainability.”
Positive Outlook
The IHS Markit/CIPS Purchasing Managers Index (PMI) rose to 60 in April, increasing from 56.4 in March. A figure above 50 is indicative of expansion within the economy.
Combined with the fact that the service sector outgrew the manufacturing sector for the first time since, the beginning of the pandemic, the forecast is that in spite of the high levels of borrowing, the rebound and recovery phase will be equally strong.
