UK public sector borrowing rose more than expected in February, driven by the cost of the government’s energy support schemes, but was still on track to undershoot the new official forecast for the fiscal year.

Public sector net borrowing was £16.7bn last month, the Office for National Statistics said on Tuesday. That was £9.7bn more than in February 2022 and higher than the £11.4bn forecast by economists polled by Reuters.

It was also the highest February borrowing since monthly records began in 1993, largely because of substantial spending on energy support initiatives.

Commenting on the figures, chancellor Jeremy Hunt said: “Borrowing is still high because we’re determined to support households and businesses with rising prices and are spending about £1,500 per household to pay just under half of people’s energy bills this winter.”

Borrowing rose despite the government’s receipts increasing by £4.9bn compared with February last year, reflecting higher tax receipts on labour and raised revenues from the energy profits levy.

Interest payments were also lower than in February last year following the decline in the retail price index that determines the cost of index-linked gilts.

However, the energy price guarantee for households and the energy bill relief scheme for businesses boosted spending by £9.6bn compared with February last year, raising overall expenditures to £80.8bn.

Better news came from the figures for the period between April 2022 and February 2023, when the public sector borrowed £132.2bn. With only one month of this fiscal year still to go, borrowing is on course to undershoot the £152.4bn forecast by the Office for Budget Responsibility for 2022-23, which was revised down last week from the £177bn forecast in November.

The undershooting is more likely when taking into consideration the £8.6bn temporary difference between the ONS and OBR’s estimates because of the treatment of student loans. Accounting for that, the public sector could borrow an additional £28.8bn in March 2023, according to the ONS, a much larger sum than the £5.4bn borrowed in March 2022.

Figures for the fiscal year to February showed that tax receipts were 11.1 per cent higher than the same 11-month period a year earlier, reflecting the resilience of the economy and the labour market against the cost of living crisis.

Last week’s official downward revision in public borrowing for the current fiscal year enabled Hunt to expand free childcare, offer a £9bn tax break for businesses and boost pensions for the higher earning at the Budget.

With borrowing likely to undershoot the full-year forecast, Ruth Gregory, economist at the consultancy Capital Economics, said the chancellor “might have a bit of money to play with in the fiscal event in the autumn”, not least because of the year in which the fiscal rule requires debt to GDP to be falling is judged rolls on from 2027-28 to 2028-29.

However, she added that “the big risk is that the turmoil in the banking sector deepens the economic downturn and the recent improvement in the public finances is blown away”.



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