23 January 2024
If you are covering the latest borrowing figures from the UK as well as financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Figures released today will have been welcomed by Chancellor Jeremy Hunt ahead of the spring budget, providing him with a little more wiggle room to fund a programme of tax cuts which are now being more openly signalled by the Treasury. Public sector borrowing in December was reported at £7.8 billion, £6.2 billion less than OBR forecasts and around half the figure borrowed in December 2022, with the reduction coming primarily from falling interest costs on index-linked gilts and energy support schemes dropping out of figures.
“Net debt as a percentage of GDP stands at an estimated 97.7%, 1.9 percentage points higher than a year ago, and a signal of the bad combination of structurally rising costs and sluggish GDP growth. The Bank of England’s QE programme increases this figure from 88.7% at the end of December 2023, with a £104bn price tag attached coming from the difference in value between assets at their historic purchase price and their marked-to-market redemption value.
“Any future government must be acutely aware of the challenge of funding not only an increasingly costly and in-demand NHS, but also a growing defence budget and costs associated with climate change and energy transition whilst the economy is growing so very slowly – with the central forecast by the OBR for the potential growth rate of the economy slipping to 1.6% over the medium term in their November outlook. With this level of debt relative to GDP at a figure last seen in the 1960s, the difference then was that it had steadily been falling since the war years. With net debt as a percentage of GDP having risen from a level of around 30% at the turn of the millennium, the trajectory now is one of ever rising indebtedness, posing difficult questions for government and indeed society in the years ahead.
“Across the Atlantic, the Conference Board Leading Economic Index for December came in showing a decent improvement on November, signalling a less negative outlook for the year ahead, albeit one they continued to believe signals two quarters of negative growth in 2024. However with economic indicators proving a fickle friend in 2023 with the resilience of the US consumer being a source of surprise to many, this improving trajectory is more likely to be taken as the latest signal of a soft landing.”
