Rolling coverage of the latest economic and financial news
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, says public finances are “only likley to get worse.”
It now looks inevitable that government borrowing will soar past the £115.5bn that the OBR expected for this financial year back in March. Indeed, a weaker economy, rising unemployment rate, soaring gilt yields and some additional fiscal support for households and businesses will combine to push borrowing significantly higher this year. We have pencilled in an additional £20bn to £30bn of borrowing this year.
What’s more, if gilt yields remain around current levels through to the next budget, the chancellor will probably lose around £10bn of headroom in 2029/30 against her fiscal rules. That doesn’t preclude a larger bailout now – as long as it is temporary. Instead, the real constraint on borrowing is financial markets. With 10-year gilt yields already above 5% and the budget deficit above 4%, the UK is entering the crisis in a precarious fiscal position.
Headroom against the fiscal rules would be cut by closer to £10B if half the rise in yields since the Budget is sustained until 2029/20. As best we can tell, political risk has added 20-to-40bp to gilt yields and we suspect will keep borrowing costs more elevated than they otherwise would be this year. Either a more left-leaning Prime Minister will take over, or the current PM will shift further leftwards. Granted, Mr. Burnham will stick to the fiscal rules. But doing so could be hard given the government’s unpopularity, and in any case tax hikes to fund spending plans could undermine growth and worsen the fiscal arithmetic.
Borrowing this month was substantially higher than in April last year and although receipts increased compared with April 2025, this was more than offset by higher spending on benefits and other costs.
Borrowing for the latest full financial year was revised down slightly, and on a comparable basis remains the lowest since the year ending March 2020.”
Earlier this week the IMF agreed we had the right economic plan to reduce the deficit. We are cutting borrowing and debt – with our actions reducing government borrowing by over £20 billion last year - while driving growth through £120 billion of additional capital investment over the Parliament. Working families have benefited from falls in inflation and cuts to interest rates - and our non-negotiable fiscal rules will be all the more important to continue to protect them as we face the consequences of the war that we have played no part in.
After strong growth last month, motor fuel sales fell in April, with evidence suggesting motorists were conserving fuel after stocking up in March.
These subdued fuel purchases contributed to a sizeable monthly fall for total retail sales in April.
7am BST: UK retail sales
7am BST: ONS public finances for April
3pm BST: University of Michigan survey of US consumer confidence
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