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Public sector borrowing: debt interest payments jump in June
Date: 26th July 2021
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:
· Public sector net borrowing (PSNB) was £22.8bn in June 2021 and, even though lower than in June 2020, it was still the second highest June borrowing since monthly records began in 1993.<_o3a_p>· Debt interest payments rose sharply in June 2021 to £8.7bn (compared with £2.7bn in June 2020), reflecting the higher payments on index-linked gilts (gilts linked to the RPI) as inflation has increased.<_o3a_p>· The PSNB for the first three months of FY2021 (March-June) is running some 20% below the OBR's expectations in March 2021.<_u13a_p><_o3a_p>· The IFS estimated that the PSNB for full year FY2021 may be some £30bn less than forecast by the OBR. But they warned that, even though the short-term outlook had improved, the medium-term was less favourable and 'the Chancellor was likely to have very little room for manoeuvre in his forthcoming Spending Review'. <_o3a_p>· Public sector net debt (PSND) continues to rise. At end-June PSND was £2,218.2bn, 99.7% of GDP, the highest ratio since the 102.5% recorded in March 1961.<_o3a_p>· Retail sales rose 0.5% (MOM) in June, after slipping in May.<_o3a_p>· The latest Markit survey suggests growth slowed in July, partly reflecting the impact of COVID isolation rules and other restrictions due to the pandemic.<_o3a_p>
· The latest Markit surveys for the Eurozone and the US show continued strong growth in July, albeit with some easing in the US.<_o3a_p>· At its July meeting the Governing Council of the ECB acted in order '…to underline its commitment to maintain a persistently accommodative monetary policy stance to meet its inflation target.' There were no policy changes. The inflationtarget was modified recently to be a symmetric 2% inflation target, compared with the previous 'close to but below 2%' target.<_o3a_p>· The Federal Open Market Committee (FOMC) meets this week. Interest will probably focus on the Fed's explanation for rising inflation (CPI inflation rose to 5.4% in June). To date, it has largely attributed higher inflation to 'transitory' effects. <_o3a_p>
Ruth Lea said 'Even though public borrowing is lower this year than last, it is still very substantial. And, even if borrowing comes in at around £200bn for FY2021, this is still around 9% of GDP. Moreover, the jump in debt interest payments in June reminds us just how vulnerable these payments are to higher inflation as well as higher interest rates.'<_o3a_p>
For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html
Arbuthnot Banking Group PLC:
Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
Follow Ruth on Twitter @RuthLeaEcon
020 7379 4415
Arbuthnot Banking Group plc published this content on 26 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 July 2021 09:27:07 UTC.