British public borrowing rose once again during August, reaching a new record high, with this being driven by the huge outlays to fight the COVID-19 pandemic, as the new budget deficit so far this tax year overtakes the peak that was reached during the global financial crisis.
According to the latest statistics, the United Kingdom government has now borrowed a staggering £173.7 billion during the five months since the start of the financial year in April, with this being higher than the previous record reached of £157.7 billion which was set during the year that ended March 2010, during the global financial crisis.
Government budget forecasters have warned that this deficit could reach £372 billion by the end of the tax year, thus raising borrowing as a share of gross domestic product to an astounding 18.9%.
A level of 18.9% in borrowing as a share of gross domestic product has not been reached since World War Two, being extremely far away from long-term sustainability.
UK finance minister Rishi Sunak stated on Thursday that due to the current situation, the main focus is to restore economic growth, not reduce borrowing, yet some tough decisions will be needed to ensure sustainability in the long-term.
However, he has refused to continue the support that was present during the start of the pandemic towards those people that have had their work jeopardised by the pandemic.
Sunak said that from November, the government would only subsidise ‘viable’ jobs, meaning those jobs where people were working for at least a third of their normal hours, thus ending the programme where the government was paying up to 80% of furloughed employees’ wages.
As a result of this, plenty of economists and trade unions fear that such a decision could mean a major rise in unemployment for people that work in certain sectors, particularly in hospitality, arts and also in entertainment, with these receiving the worst treatment out of all of the sectors when it comes to coronavirus restrictions.
Economists of the firm Morgan Stanley claimed that Sunak might be forced to reverse his decisions and offer support to these sectors.
Jacob Nell and Bruna Skarica, economists for the firm, wrote that “We think the risks to the deficit are to the upside, with the Chancellor likely to provide additional support if restrictions tighten further, or unemployment surprises”.
In August alone, borrowing rose to £35.9 billion, which is just lower than the economists’ average forecast of £38 billion, whilst July’s numbers were revised down by £11 billion to £15.4 billion.
The UK’s Office for National Statistics stated that the revisions in July reflected the difficulties that assigning government spending has had during certain months.
Also, during August, public sector net debt reached £2.024 trillion, which is 101.9% of the UK’s GDP, being the highest as a share of the economy since way back in the 1960-61 financial year.
Out of the G7 countries, the UK’s economy suffered the most due to the COVID-19 pandemic during the second quarter of the year, as output collapsed by 20%, with the Bank of England estimating that third quarter output will be approximately 7% below the pre-pandemic levels.
Despite there being heavy borrowing from the government, its interest costs on financial markets are also near record lows, as the global gloom about the economic outlook and the long-term fall in interest rates continue to bring this down.