Latest figures from the Office for National Statistics (ONS) showed that July’s borrowing was the fifth highest for the month after the three years following the global financial crisis and the first year of the pandemic.
It was also up from just £900 million in July 2022. Total debt now totals almost £2.6trillion, equivalent to 98.5% of GDP.
However, the deficit was slightly lower than the £5 billion forecast by City economists and some said it could give Chancellor Jeremy Hunt scope for a limited tax giveaway in the Autumn Statement. Borrowing in the financial year to date totals £56.6 billion, well below the £68 billion forecast by the economy watchdog the Office for Budget Responsibility.
July is normally a strong month for the public finances because of high levels of self-assessment income tax receipts.
Mr Hunt said: “As inflation slows, it’s vital that we don’t alter our course and continue to act responsibly with the public finances. Only by sticking to our plan will we halve inflation, grow the economy and reduce debt.”
Danni Hewson, head of financial analysis at broker AJ Bell, said that “privately [Mr Hunt] must be letting out a rather large sigh of relief that these numbers at least give him a bit of wiggle room to consider crowd-pleasing tax cuts before the next election.”
Martin Beck, chief economic advisor to the EY ITEM Club, noted that higher interest rate expectations since the last OBR forecast mean the Chancellor may have much less leeway than it appears.
“The period since the OBR’s last forecast has seen market expectations for interest rates rise markedly out to the end of the OBR’s forecast horizon,” Beck said. “Combined with the little leeway in meeting the fiscal rules forecast in the Spring Budget, this raises the odds that the official forecaster will deem the Government in breach of its fiscal rules based on current policy in the next fiscal event later this year.
“The Chancellor would likely respond by pencilling in further post-election spending cuts on top of fiscal plans that already look challenging. Therefore – regardless of who is in Number 11 after the public goes to the polls – the true medium-term path for fiscal policy is unlikely to emerge until the first post-election Budget.”