The Chancellor is expected to come under renewed pressure to deliver a bigger financial support package for low-income families suffering from the cost-of-living crisis after the public spending deficit in April fell short of expectations.
With the cabinet concerned about falling government polls as the cost of living crisis intensifies, the government borrowed £18.6billion last month – less than expected and down £5.6billion pounds sterling compared to a year ago, according to figures from the Office for National Statistics. .
Reducing government borrowing potentially gives Rishi Sunak additional funds to ease the cost of living crisis, which has hit the living standards of low-income people the hardest.
However, improving borrowing figures masked weaker-than-expected tax receipts in April, revealing the impact of the slowing UK economy on the Treasury.
Central government tax revenue of £70.2bn was lower than forecast by independent Treasury forecaster, the Office for Budget Responsibility (OBR), of £72.3bn.
Treasury revenues were also flattered by one-time items that are unlikely to recur as a possible recession looms. Local authorities posted a surplus of £2.3bn, higher than the OBR’s forecast of £1.5bn, and public enterprises said they had a balanced budget, rather than a deficit of 3, £7 billion.
A survey of private sector activity this month found economic growth “has slowed” after a slump in the services sector.
The S&P Global/Cips Composite Flash Purchasing Managers Index (PMI), which provides insight into business orders and sales, fell from 58.2 in April to 51.8 in May, well below 56 .5 predicted by City economists.
Manufacturing output continued to grow modestly in May, but inflationary pressure, mainly from imported goods, remained intense and is expected to lower orders and output in the coming months, according to the survey.
Martin Beck, the EY Item Club’s chief economic adviser, said the cost-of-living squeeze on consumer spending and the government’s end to pandemic-related spending meant growth would slow further.
“The latest round of flash PMIs signaled a significant loss of economic momentum. The May results reinforce the expectation of a significant slowdown in GDP growth in the second quarter,” he said.
Samuel Tombs, chief economist at consultancy Pantheon Macroeconomics, said the prospect of slowing economic growth and further weakening tax revenues was likely to limit the chancellor’s room for manoeuvre.
“Nevertheless, opinion polls suggest the Tories would only get 33% of the vote if a general election were held today, five percentage points behind Labour, so pressure is mounting on Sunak to take him. do more to improve his party’s chances of being re-elected in May 2024,” he said.
“As a result, we continue to expect the Chancellor to postpone the April 2023 inflation-linked benefit value increase to October, at a cost of £6billion, and significantly increase the value discount on warm homes this winter.
Interest payments on government borrowing were lower than expected at £4.4bn last month, but are expected to rise in June when Treasury loans linked to the retail price index show the full extent of the recent jump in inflation.
The ONS said the April figures also included the £3billion cost of the recent council tax refund, which offered £150 to many households across the UK to help them cope with soaring energy bills.
The impact on public finances would be to increase borrowing this year from £110bn to £120bn, Tombs added.
There was better news for Sunak from revised figures for the previous financial year, which showed borrowings for the year to March had been revised down by £7.2bn to 144.6 billion, although still higher than the OBR’s forecast of £127.8 billion.
Sunak said: “While we are doing what we can to help families cope with rising prices, inflation is also driving up our interest expense on debt – which is expected to reach £83billion this year. .
“We must take a balanced and responsible approach to supporting people now, without weighing down future generations, and we are on track to reduce public debt by 2024-25.”
Total government debt, excluding public sector banks, stood at £2.35tn at the end of April, or about 95.7% of gross domestic product (GDP).