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The UK public sector indebtedness rose to a record level in the first eight months of the financial year as the pandemic continued to ruin government finances, resulting in falling revenue and skyrocketing spending.
The government borrowed £ 284.7 billion to cover the gap between its spending and income from April to November, according to the Office for National Statistics, three times the previous highest figure since comparable records began in 1984.
UK public finances are expected to come under increased pressure as the economy struggles with new restrictions imposed to limit the spread of a new variant of coronavirus that has led to a surge in infections in south-east England .
Commenting on the figures, Chancellor Rishi Sunak pointed to the government’s investment of £ 280 billion to protect jobs and businesses during the pandemic, which he said was “the right thing to do”. But he added: “When our economy recovers, it is right that we take the necessary steps to put public finances on a more sustainable basis.”
In his Nov. 20 spending review, Sunak said the coronavirus pandemic would see government lending surge this year to a peacetime record of £ 394 billion. He also announced cuts to foreign aid spending and a freeze on public sector wage increases as the first steps to reduce the accumulation of debt.
The public sector borrowing figure on Tuesday was increased by a government net cash requirement of £ 23.9bn in November, when economic activity was restricted by a month-long lockdown in England.
As a result, net public sector debt at the end of November reached 2.099.8 billion pounds, similar to the size of the economy and the highest level since 1962.
Thomas Pugh, a British economist at consultancy Capital Economics, said: “The loan surge in November is unlikely to reverse much in the coming months as current Covid-19 restrictions keep many businesses closed.”
While that would fuel the conversation on how to pay for the crisis, “the successful launch of vaccines next year and a rapid rebound in gross domestic product could mean that the deficit returns to its pre-crisis level in the next few years without the need for of a lot of fiscal adjustment ”, he added.
A 42.2 percent drop in value added tax collection and a 29.8 percent drop in corporate tax collection in the financial year through November, compared to the same period last year, contributed to the expansion of public finances. During the same period, total government cash outlays increased 38.5 percent.
IMF data shows that the UK’s annual increase in public spending as a share of GDP this year is higher than that of any other large European economy.
The figures were released as the ONS revised economic output growth in the third quarter to slightly above 16 percent compared to the previous quarter, from a previous estimate of 15.5 percent. Despite that, the UK economy was 8.6% smaller than in the same quarter last year, the biggest contraction among the G7 countries.
UK economic growth was driven by stronger household consumption than previously estimated, with higher spending on restaurants, hotels and transport. As a result, consumer spending in the third quarter was 9.8 percent below its pre-closing levels, compared with an initial estimate of 12.4 percent.
As locks eased and consumers returned to spending over the summer, their savings ratio fell to 16.9 percent in the third quarter from a record 27.4 percent in the second quarter. However, this is still more than double the 6.2 percent average from 2017-19, the ONS said.
Business investment growth was also revised upwards, but it remained one of the most depressed areas of the economy, down 19% from the end of 2019.
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