The Office for National Statistics (ONS) has revealed that Government borrowing was significantly lower than expected in December due to a sharp decline in interest payments. Borrowing amounted to £7.8bn last month, marking a significant difference to the £14bn that many economists had expected. Interest payments on government debt dropped to £4bn in December, a £14.1bn decrease from December 2022. The fall in inflation played a significant role in the outcome, as interest payments are tied to the inflation figure, specifically the Retail Prices Index measure of inflation.
Capital Economics’ Deputy Chief UK Economist, Ruth Gregory, suggested that this result could prompt Chancellor Jeremy Hunt to plan a “big pre-election splash in the spring Budget on 6 March”. Hunt himself hinted last week that he would consider a tax reduction, claiming that lower taxes helped to produce more dynamic, rapidly expanding economies.
Total debt was also highlighted in the report, which amounted to £2.67tn at the end of December. This amount represents an equivalent of 97.7% of the UK’s gross domestic product (GDP), echoing levels last seen in the early 1960s. Fortunately, the fourth-highest borrowing recorded in history has not prevented economists and analysts from remaining optimistic about the prospect of tax-related announcements in the upcoming budget announcement.
The ONS data also indicated borrowing for the nine months to December 2023, which totalled £119.1bn. This figure represents a £11.1bn increase from the same period in the previous year
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