(Bloomberg) — U.K. government borrowing soared to 173.7 billion pounds ($222 billion) in the first five months of the fiscal year as the costs of coronavirus pandemic continued to mount.
The budget deficit in August alone was 35.9 billion pounds, the Office for National Statistics said Friday. Britain now has borrowed more since a national lockdown was imposed in March than during the whole of the year following the 2008-09 financial crisis.The figures come a day after Chancellor Rishi Sunak unveiled a 5 billion-pound plan to rescue millions of jobs and businesses from a winter crisis as a resurgence of Covid-19 threatens to derail the economy.The pandemic has wrought havoc with the public finances. Debt is now above 2 trillion pounds and the deficit –- the amount the government needs to borrow to fund its spending -– is set to be approaching 400 billion pounds in the current fiscal year.
At almost a fifth of gross domestic product, it would represent the largest gap in British peacetime. In 2009-10, the deficit hit 158.3 billion pounds, or around 10% of the economy.
With Bank of England bond-buying keeping borrowing costs at record lows, the deficit is affordable for now but Sunak has said the public finances will have to be returned to a sustainable footing once the crisis is over -– a hint that Britain faces tax rises in the medium term.
Tax revenue was down 14% in August compared with a year earlier and spending jumped by a third. Spending was boosted by 500 million pounds paid to restaurants under Eat Out to Help Out, a Treasury-sponsored initiative to help the beleaguered hospitality industry, and 11 billion pounds for workers idled as a result of the pandemic.
Even before Thursday’s announcement, the Office for Budget Responsibility put the cost of direct support for the economy in 2020-21 at over 190 billion pounds.
Net debt was 2.02 trillion pounds last month, or 101.9% of GDP, the highest debt ratio since 1961. A cash-based measure of the deficit used to determine government bond issuance was an unprecedented 221.2 billion pounds in the fiscal year to date.
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