UK Budget Deficit Widens On Measures To Combat Covid-19

The UK budget deficit increased sharply in June as the government took measures to support businesses and individuals to address the impact of the coronavirus pandemic.

Public sector net borrowing excluding public sector banks increased GBP 28.3 billion from last year to GBP 35.5 billion in June, which was the third highest deficit in any month on records, data from the Office for National Statistics showed Tuesday.

Borrowing for May was revised down by GBP 9.8 billion to GBP 45.5 billion due to stronger than previously estimated tax receipts.

Due to the unprecedented impact on public finance, the budget deficit for the quarter ended June hit a record GBP 127.9 billion. This was more than double the GBP 55.4 billion borrowed in the whole financial year ended March 2020.

Data showed that central government net cash requirement in June was GBP 47.1 billion, about GBP 33.6 billion more than in June 2019 and the highest cash requirement in any June on record. At the end of June, public sector net debt excluding public sector banks increased by GBP 195.5 billion from last year to GBP1,983.8 billion. As a percentage of gross domestic product, debt was 99.6 percent at the end of June, which was the highest debt to GDP ratio since the financial year ending March 1961.

The smaller rise in public sector borrowing in June compared to May suggests that government support is starting to wind down as the economy reopens, Thomas Pugh, an economist at Capital Economics, said.

However, government borrowing is still exceptionally high and a slowdown in the recovery and further rise in unemployment later this year will prompt the government to announce additional fiscal spending at the next Budget, the economist said.