22 October 2024
If you are covering the latest UK public sector finances data, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“With just over a week to go before the Labour government’s first budget, figures out this morning reveal that UK borrowing – the difference between public sector spending and income - was £16.6 billion in September, a £2.1bn billion rise compared to September 2023 and the third highest September borrowing figure on record.
“In the financial year to September 2024, borrowing climbed to £79.6 billion marking an increase of £1.2 billion compared to the same six-month period last year and the third highest level since monthly records began.
“The UK’s finances are stretched close to breaking point, as public sector net debt excluding public sector banks estimated at 98.5% of GDP at the end of September 2024. This is an uptick of 4% compared to the same time last year. The last time such levels were seen was in the 1960s, when the Labour Chancellor of the day was ultimately forced into a policy of tax increases and spending reductions.
“Although Rachel Reeves has promised that the UK will not see a return to austerity, a series of tax increases in one form or another are all but guaranteed at next week’s budget. The Chancellor has warned the UK public that there is a very large fiscal ‘black hole’ to be filled and has repeatedly indicated that difficult decisions will be necessary. The Labour government will want to avoid a repeat of the negative reactions from financial markets in recent years to unfunded tax cuts and spending plans, so the Chancellor will need to be transparent when announcing any changes and the anticipated costs.
“The mood has been bleak in the lead up to the budget, and while it remains to be seen how the market will react to any announcements, there are still some positives for the UK economy. For the first time in more than three years inflation is now well below the Bank of England’s 2% target. The economy finally grew in August following two months of stagnation, and while higher interest rates have begun to take a toll on the labour market, there are still signs of progress. With all that considered, the Bank of England is expected to continue on its ‘slow and steady’ path with the potential for another 0.25% cut at its next monetary policy meeting, which could help to lift consumer confidence and provide a much needed boost to the economy.”
