UK June public sector borrowing eases but set to top 20% of GDP

UK public sector borrowing hit a quarterly record in June as the government battled the impact of the coronavirus pandemic, with some economists forecasting it was on course to hit 20% of gross domestic product during the current fiscal year.

Borrowing across the June quarter reached £127.9bn, £103.9bn more than a year ago and more than twice the amount incurred during the whole of the previous fiscal year.

Net borrowing excluding public sector banks, eased to £35.5bn in June (consensus: £38.0bn) from £45.5bn for May (preliminary: £54.5bn), the Office for National Statistics said.

The fall was due to most payments for self-employed workers being made in May and the cost of the government's furlough scheme easing to £9.1bn in June from £10.2bn for May firms began recalling staff.

Nonetheless, borrowing was £35.5bn higher than in May 2019 and the third highest monthly tally on record since 1993.

The £9.8bn downward revision to May's estimate for borrowing was the result of stronger-than-previously-estimated tax receipts and national insurance contributions, ONS said.

At £44.0bn meanwhile, the government's net cash requirement exceeded borrowing due to the additional cost of loan schemes and outlays for the Bank of England's Term Funding Scheme.

Excluding UK Asset Resolution Ltd, Network Rail and the Covid Corporate Financing Facility, the Treasury had a cash requirement of £47.1bn, the highest for any month of June since records began in 1984.

For the financial year-to-date the net cash requirement was £174bn or £153.7bn more than a year ago and also the highest fiscal year first quarter tally since 1984.

Public sector net borrowing hit 99.6% of gross domestic product at the end of June and excluding public sector banks stood at £1,983.8bn or £195.5bn more than in the equivalent year ago period.

Samuel Tombs at Pantheon Macroeconomics said: "On current plans, then, public borrowing looks set to total about £370bn this year, equivalent to around 19% of GDP.

"Borrowing probably will top 20% of GDP this fiscal year if, as we expect, the chancellor dispenses more funds in the autumn Budget to reinvigorate the economy that likely still will be smaller than its pre-Covid size."