By Andy Bruce and Sachin Ravikumar
LONDON (Reuters) -Britain’s government borrowed more than expected in February, official data showed on Tuesday, but finance minister Jeremy Hunt may still hope that falling energy costs and inflation will offer leeway later this year for a pre-election tax cut.
The Office for National Statistics said public sector net borrowing, excluding state-owned banks, was 16.7 billion pounds ($20.4 billion) last month, the largest February deficit since monthly records began in 1993.
The reading was above all predictions in a Reuters poll of economists, which had a median forecast for 11.4 billion pounds in borrowing.
The figures are not adjusted for the time of year – so comparisons are usually only made against the same month in previous years – and nor do they account for the impact of inflation over time.
The ONS said February’s borrowing data reflected “substantial” spending on energy bill support programmes.
The higher-than-expected borrowing underlines the dilemma facing Hunt, who must fund expensive support for households and businesses in the near term while working out a way to cut taxes before the next election, likely to be in 2024.
Hunt said last week the energy subsidies would be extended until June, but would cease thereafter as wholesale energy prices are forecast to fall below the level at which the government deems consumer subsidies to be necessary.
“The news on the public finances may have raised the Chancellor’s hopes that he will be able to announce a pre-election giveaway later this year,” said Ruth Gregory, deputy chief UK economist at Capital Economics.
“But the big risk is that a further escalation in the banking crisis causes a deterioration in the fiscal outlook as the hit to the public finances from weaker economic growth is only partially cushioned by lower gilt yields.”
Spending on energy support schemes totalled 9.3 billion pounds in February alone, the ONS said.
Published with his annual budget last week, forecasts from the Office for Budget Responsibility (OBR) showed an improved outlook for the public finances compared with its previous report in November, with borrowing averaging 10 billion pounds lower in each future financial year than previously predicted.
While the OBR said this reflected a less pessimistic economic outlook than four months ago, borrowing is still likely to run about 50 billion pounds higher each year compared against its March 2022 forecasts, before the full scale of the energy shock was apparent.
Tuesday’s data showed cumulative borrowing from April 2022 through February 2023 stood at 132.2 billion pounds.
Last week the OBR forecast borrowing for 2022/23 as a whole would reach 152.4 billion pounds, or 6.1% of economic output – a target that looks likely to be met.
January’s surplus in the public finances was revised up by almost 3 billion pounds.
Britain’s debt interest bill was 6.9 billion pounds in February, 1.3 billion pounds less than a year earlier, reflecting changed payments on inflation-linked government bonds, the ONS said.
($1 = 0.8163 pounds)