Government borrowing jumped by far more than forecast last month as the Treasury battles the impact of higher inflation on the public finances.
Figures from the Office for National Statistics (ONS) showed net borrowing, excluding state-owned banks, increased by £2bn to almost £6.9bn in June compared with the same month last year – a rise of 43%.
The figures underline the scale of the challenge facing a politically-weakened Government wanting to balance the budget while facing demands from critics to loosen the purse strings, in particular by removing the pay cap from public sector workers.
All this while the economy falters.
Higher inflation – a consequence of the pound’s weakness since the Brexit vote – has threatened Government coffers as it risks hitting taxes if businesses and consumers rein-in their spending.
But it is taking a toll on the bank balance in another way – by making the Government pay more interest on some of its debt as repayments are linked to inflation. It accounted for £4.9bn last month alone – its highest June level since 2011.
It was £1.2bn higher than in May.
Borrowing was also up because of a corrective payment to the EU budget of £800m though a jump in income tax and capital gains tax revenue more than offset a fall in corporation tax revenues.
It all meant, the ONS said, that borrowing in the financial year to date was almost 9% ahead of where it was after the first three months of the 2016/17 year at £22.8bn.
Total national debt stood at £1.75tn.
The Office for Budget Responsibility (OBR) has forecast that public sector net borrowing will be £58.3bn during the 12 months to March 2018.
A Treasury spokesman responded: “Today’s release shows that our national debt, at £65,000 for every household,
is still too high and leaves us vulnerable to any future shocks.
“That is why we have a credible fiscal plan to get debt falling and deliver the sound public finances needed for a stronger economy and higher living standards.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics said a series of one-off factors – such as the amended EU budget contribution – had distorted the figures.
But he warned: “None of these developments tell us anything about the underlying health of the economy.
“Tax receipts, however, increased by just 4.6% year-over-year in June, and the average 4.7% year-over-year increase over the first three months of this fiscal year is well below the 6.5% increase seen in 2016/17, pointing to economic fragility.”