UK government spending to combat the coronavirus pandemic pushed the public finances further into the red in February, although by less than City economists expected after robust consumer spending prevented a steep fall in VAT.
With the third lockdown in its second month, the Office for National Statistics (ONS) said public sector borrowing was £19.1bn in February, £17.6bn more than in the same month last year and the highest February borrowing since monthly records began in 1993.
City economists had expected February’s deficit to hit £21bn.
The ONS data showed that government borrowing was on course to match the Office for Budget Responsibility’s forecast for the 2020-21 financial year of £355bn. The OBR is the government’s independent economic forecaster.
However, the figures for the public finances also appeared to confirm that economic activity has held up strongly during the third lockdown and the recovery will be faster than the OBR expects, meaning borrowing could be lower than it is forecasting further ahead.
The Bank of England said on Thursday that while the outlook was uncertain, the economy was in better shape than it expected only a few months ago, mainly because of the acceleration of the vaccination programme.
Thomas Pugh, a UK economist at the consultancy Capital Economics, said that at £63.2bn, tax receipts were not that much below levels of a year ago, when the government collected £64.1bn in February 2020.
“But government expenditure remained extremely high at £72.6bn in February as the government spent £3.8bn on the furlough scheme in February. The February spending total was £15.0bn higher than in February 2020 and only slightly below spending in January 2021 of £75.2bn.
“This leaves cumulative borrowing, with just one month to go until the end of the fiscal year, at £278.8bn. But the figures do not yet include an estimated £24bn of write-offs of government-backed loans.
“In any case, we think that the fiscal forecasts further ahead are predicated on overly pessimistic forecasts for GDP growth. If we are right, borrowing may be lower than the OBR expects over the next few years, allowing the chancellor to cancel some of the proposed tax hikes before the 2024 general election.
In the budget a fortnight ago, the chancellor, Rishi Sunak, said that the period of doing “whatever it takes” to revive the economy would be relatively short-lived and that action would be needed to repair the public finances once the crisis was over and recovery was under way.
In response to the borrowing figures on Friday, Sunak said: “Coronavirus has caused one of the largest economic shocks this country has ever faced, which is why we responded with our £352bn package of support to protect lives and livelihoods.
“This was the fiscally responsible thing to do and the best way to support the public finances in the medium-term.
“But I have always said that we should look to return the public finances to a more sustainable path once the economy has recovered and at the budget I set out how we will begin to do just that, providing families and businesses with certainty.”