Sunak forced to borrow yet more as inflation soars and growth falters

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There is an increase of 70% in loan interest payments over the previous year for the Chancellor

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The Ishii craze was presented today as another economic headache as rising inflation and slowing growth meant he was forced to borrow more than he planned in May.

The latest data from the Office for National Statistics (ONS) shows the chancellor turned to debt markets for more than the £14 billion expected during the month to keep the kingdom’s wheels turning.

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ONS data shows interest payments rose 70% over the previous year to £8.6 billion, a record for the month as the government was obliged to increase its payments on index-linked gilts.

The borrowing figure was the third highest on record for May, only after the Covid-ravaged years of 2000 and 2021. This was £8.5 billion more than in 2019.

But city analysts said today’s figures point to a worrying decline in public finances that could stifle the Chancellor’s ambition to cut taxes or provide more support to vulnerable families at the cost of a life crisis.

Paul Dales, UK Chief Economist at Forecaster Capital Economics, said: “The larger than expected increase in public borrowing in May is an early blow to the government, when it is expected to lose two by-elections.

“What’s more, the combination of further weakening in economic activity and more interest rate hikes would probably mean that borrowing exceeds the OBR’s 2022/23 forecast of £99bn by at least £10bn. It will limit the Chancellor’s ability to cut taxes and provide more grants to families when the cost of living crisis worsens later this year.

“Lending is still declining compared to a year ago, but it is now declining at a slower pace than the OBR forecast in the March spring statement. The April figure was increased from £18.6 billion to £21.9 billion and Lending at £14.0 billion in May was worse than both the OBR forecast of £10.3 billion and the consensus forecast of £13.2 billion.

The chancellor said: “Rising inflation and rising debt interest costs pose a challenge to public finance, as they do to the family budget. This is why we are taking a balanced approach – using our fiscal firepower Providing targeted assistance with cost of living, while staying on track to reduce debt.

“Being responsible now with public finance will mean that future generations are not burdened with even more debt repayments, and we can secure our economy for the long term.”

ONS data shows central government receipts were £66.6 billion in May 2022, £5.7 billion more than in May 2021, of which tax receipts were £48.3 billion, an annual increase of £3.4 billion.

Central government expenditure was £74.0 billion, £2.2 billion less than in May 2012, offset by a £4.9 billion reduction in subsidies with an additional £3.1 billion cost of loan interest payments.

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