Record borrowing in December shows Britain is far from out of the woods

Recent glimmers of good economic news have yet to feed into the public finances, with borrowing in December around £4 billion higher than market expectations, and nearly £10 billion higher than OBR forecasts (due in partly to the treatment of student loans), the Resolution Foundation said today (Tuesday) in response to the latest ONS public sector finances.

Borrowing reached £27.4 billion in December – the highest December figure since monthly records began in January 1993 – driven by extra spending on the Energy Price Guarantee (EPG) and a jump in debt-interest costs, reflecting the impact of higher inflation on index-linked gilts.

While the cold snap in December will have increased the cost of the EPG last month, falling wholesale gas prices are set to drive a huge fall in the cost of the scaled back EPG next year, although that will also reduce the revenues from windfall taxes on energy companies.

Felicia Odamtten, Economist at the Resolution Foundation, said:

“Glimmers of good economic news have yet to show themselves in the public finances, with borrowing significantly higher than expected in December. Rising energy support and debt interest costs continue to drive up borrowing this year, though energy support is set to be far less costly next year.

“The disappointing news on the public finances will make the Chancellor’s life harder as we come into the Budget in March, reducing his room for manoeuvre.”