Image © Gov.uk
The UK Government borrowed a staggering £62.1BN in April as it raced to support an economy brought to its knees by the enforced shutdown put in place to stop the spread of covid-19.
The scale of the borrowing is substantially larger than the market had been expecting, as the consensus expectation amongst economists was for a reading of £48.7BN to be reported.
This contrasts to the £14BN borrowed in March and is £51.1BN more than was borrowed in April 2019, making for the highest borrowing in any month on record (records began in January 1993).
The increase in spending was largely driven by the Coronavirus Job Retention Scheme - that sees the government pay the wages of furloughed workers - which cost the Treasury £5.2B in April, as well as higher healthcare spending.
Central government tax receipts fell by 26.5% year-over-year in April, primarily due to a huge 43.6% fall in VAT receipts as consumers held on to their money. The data concerning the government's finances comes alongside another release that showed a 18% month-on-month drop in retail sales in April.
According to the ONS, central government net cash requirement (central government net cash requirement excluding UK Asset Resolution Ltd, Network Rail and the COVID Corporate Finance Facility) in April 2020 was £63.5BN, £73.3BN more than in April 2019.
This is the highest cash requirement in any month on record (records began in April 1984).
"We still think that public borrowing will equal about 15% of GDP this year - greatly exceeding the 10% peak in the 2008-to-09 recession - even if a second virus wave is avoided. Hefty gilt issuance, however, looks set to remain facilitated by the MPC, which we think will increase this year’s QE total to £300B, from £200B, in June. Such purchases would keep the stock of gilts in private-sector hands unchanged this year and thus maintain record-low borrowing costs for the government," says Samuel Tombs, UK Economist at Pantheon Macroeconomics.
"With little prospect of a swift return this year towards pre-crisis levels of economic activity, we expect borrowing to total £340bn (17.5% of GDP) over 2020/21, which would be over £40bn more than the OBR’s forecast," says Paul Dales, Chief UK Economist at Capital Economics.
It will prove difficult to predict exactly how government borrowing progresses from here, particularly as the shape of the post-lockdown recovery is still a mystery. However, the unlocking of the economy in May should result in economic activity picking up and more workers coming off furlough.
Expectations for a further easing of restrictions in early June should further quell demand by central government for cash.
"The small easing of the lockdown on 13th May probably means that retail sales started to edge higher in May and that the government might not have had to borrow quite as much as in April," says Dales.
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