Loans grow less quickly than expected despite capped power bill

Government borrowing rose less than expected last month, even as it spent extra billions on an energy price cap and covered its first losses from the Bank of England’s bond-buying scheme.

Official figures showed total government borrowing rose to £13.5bn in October, less than economists’ forecasts of £22bn and down from £19bn in September. The figures are still £4.4bn higher than total lending of £9.3bn in the same month last year.

The government raised £70.2bn in tax revenue, up 6.3% on October 2021, thanks to increases in income tax and national insurance contributions and a 50% jump in income tax revenue. societies.

The Office for National Statistics said October had been the first month on record in which the government had covered losses from the central bank’s quantitative easing program worth £800 million. The Treasury indemnifies losses suffered by the Bank on its £836 billion government debt reserve. Rising interest rates mean the bank is taking a loss on its gilt holdings by paying more to commercial banks in their reserves than it earns on its bond holdings.

The Office for Budgetary Responsibility warned last week that the Treasury would have to put in £133bn over the next six years to cover losses from QE, reversing more than a decade of cumulative gains from the stimulus programme.

Borrowing increased by around £3bn last month, with the government introducing an energy price cap for households that will freeze average bills at around £2,500 until April and a similar freeze for the companies. The cap will cost around £25bn over the next six months, according to the OBR, but could become more expensive if market gas prices rise. The ONS said the interest bill on the government’s debt had reached £6.1bn last month. Debt interest costs have doubled over the past year to £120bn as higher interest rates have increased pressure on public finances.

Last week, the OBR warned that the interest bill on the debt would be the biggest cause of fiscal deterioration in the coming years, since government spending on servicing its bonds would exceed spending on health care.

Increased spending on welfare, pensions and interest on debt, coupled with falling tax revenue from a slowing economy, will increase government borrowing by around £60bn a year, according to the OBR.

Jeremy Hunt said it was “right for the government to increase lending to support millions of businesses and families during the pandemic and the aftershocks of Putin’s illegal invasion of Ukraine.”

The chancellor added: “To tackle inflation and ensure the economic stability necessary for long-term growth, it is vital that we put public finances back on a more sustainable path. There is no easy path to balance the nation’s books, but we have made the decisions necessary to reduce debt while taking active steps to protect jobs, public services and the most vulnerable.”

Last week Hunt announced two new fiscal rules to help restore market credibility in Britain. The government wants to reduce its total debt stack to GDP from 2027-28 and limit the deficit to less than 3 percent of GDP in the same year.

Citi analysts had expected lending to hit £29bn last month and said the figures should help this year’s total lending fall below OBR’s forecast of £177bn.

Ruth Gregory of Capital Economics, the consultancy, said increased lending would “only embolden the chancellor to keep a tight rein on public finances.”

Separately, the government may need to pay the bank more than £30bn next year and also in 2024 to cover losses in its quantitative easing programme, a report published by the central bank showed yesterday.

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