Government borrowing higher than expected in April

The UK government borrowed more than expected last month, hitting the highest level for April since the Covid pandemic in 2020, the latest official figures show.

Borrowing, the difference between spending and income from taxes, was £24.3bn last month, £4.9bn higher than at the same point last year, the Office for National Statistics (ONS) said.

The figure was also higher than the £20.9bn that had been predicted by the government's independent forecaster, the Office for Budget Responsibility (OBR).

ONS chief economist Grant Fitzner said April's borrowing figure was "substantially higher" than a year earlier, with higher tax receipts being "more than offset by higher spending on benefits and other costs".

The figures showed spending by government on benefits rose by £2.7bn from the same point last year, which the ONS said was largely caused by inflation-linked increases to many benefits and the earnings-linked rise to the state pension.

Debt interest payments were £10.3bn, up £0.9bn from a year earlier and a record high for the month of April.

Borrowing for the latest full financial year to March was revised down by £3bn to £129bn.

"Public sector borrowing for April came in above the OBR's March projection, largely driven by higher spending by central government," said Dennis Tatarkov, senior economist at KPMG UK.

"Given the increasingly uncertain economic outlook, this could set the tone for the rest of the fiscal year."

Ruth Gregory, deputy chief UK economist at Capital Economics, said April's figures "showed that the fiscal position was worse than expected even before the full impact of the energy price shock is felt".

The surge in energy prices since the beginning of the Iran war has prompted analysts to cut their growth predictions for the UK economy, with households facing higher fuel bills and the Bank of England no longer expected to cut interest rates.

Weaker economic growth is likely to lead to a slower increase in overall revenues from taxes, although the government might gain extra income from taxes on petrol and North Sea oil and gas.

The government is also spending on measures to try to counter the rise in the cost of living.

On Thursday, it announced a cut in VAT on tickets for family days out, free bus journeys for under-16s in England in August and cuts to import taxes on some basic foods. To help fund this the government is changing the tax rules for some UK-based oil and gas companies.

Tatarkov said the lower growth forecasts for the UK meant that "public sector borrowing is likely to remain elevated in the medium term, potentially forcing the chancellor's hand to make more tweaks to fiscal policy at the time of the autumn Budget".

The Chief Secretary to the Treasury, Lucy Rigby, said the government was "cutting borrowing and debt – with our actions reducing government borrowing by over £20 billion last year".

"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," she added.

Shadow chancellor Mel Stride highlighted how "debt interest spending was the highest of any April on record".

"The recent spike in borrowing costs shows markets are increasingly worried about Keir Starmer's replacement," he added.

Separate economic data from the ONS showed that retail sales volumes fell by 1.3% in April, reversing a 0.6% rise in the previous month.

The decline was led by a sharp fall in motor fuel sales, the ONS said, suggesting "motorists were conserving fuel after stocking up in March".

Capital Economics' Gregory said: "The drop in retail sales volumes and the public borrowing overshoot highlight the deteriorating growth outlook and fragile fiscal backdrop that will face whoever is in 10 Downing Street."