Inflation, living costs impact UK’s budget deficit

UK’s budget deficit in February was larger than anticipated, according to official data, with cost of living payments and past inflation impacting public finances, Reuters reported on Thursday.

The Office for National Statistics (ONS) reported public sector net borrowing, excluding state-owned banks, at £8.40 billion ($10.74 billion), down from £11.84 billion a year ago but higher than economists’ expectations.

The figures highlight the limited fiscal space for the next government to stimulate the UK’s sluggish economy, especially with a national election looming.

Government spending was boosted by £2 billion of cost of living payments to households, and inflation increased the value of spending on social benefits and tax receipts.

Finance Minister, Jeremy Hunt, is on track to meet the Office for Budget Responsibility’s (OBR) borrowing forecast for 2023/24, with the cumulative budget deficit for the financial year so far at £106.8 billion.

However, the outlook for 2024/25 appears more challenging, with Hunt’s goal to reduce the deficit by a quarter to £87 billion facing hurdles due to rises in state pensions, benefits, and the minimum wage exceeding inflation rates.

As the general election nears, the pressure to allocate additional funds for defence, local government, and public services is expected to increase.