UK government borrowing hits record high in April and retail sales slump – business live | Business

Paul Dales of Capital Economics predicts Britain’s deficit could hit 17% of GDP this year. That’s an immense figure — exceeding the last financial crisis, when the deficit hit 10% of annual output.

Dales explains:

With little prospect of a swift return this year towards pre-crisis levels of economic activity, we expect borrowing to total £340bn (17.5% of GDP) over 2020/21, which would be over £40bn more than the OBR’s forecast.

Overall, the small easing of the lockdown on 13^th May probably means that retail sales started to edge higher in May and that the government might not have had to borrow quite as much as in April. But it’s very clear that the retail activity will remain worrying weak for some time yet and that the government will have to borrow a few hundred billion pounds this year.

Jeremy Thomson-Cook, chief economist at financial services group Equals, says we should welcome the jump in borrowing – the alternative is worse.

The UK’s budget deficit is at the highest level since records began in 1993. This is a good thing; if your house is on fire, you don’t ask the Fire Brigade to only use a certain amount of water.

The water will need to keep flowing and the deficit will continue to grow because the alternative – a deeply scarred economy – is far worse.”

Howard Archer of EY Item Club points out that falling tax receipts also hit the public finances:

Central government receipts fell 26.5% year-on-year in April, as they were impacted by a combination of sharply contracting economic activity, markedly rising unemployment and weaker earnings, and companies being allowed to delay tax payments.

“Income and capital gains tax receipts were down 36.0% year-on-year in April, as jobs were lost and pay hit. There was also a fall of 14.1% in corporation tax receipts while VAT receipts were down 43.6% year-on-year.

Here’s some snap reaction to the surge in UK government borrowing to £62bn last month.

The BBC’s Dharshini David points out that Britain just borrowed more in April than it had expected to borrow in the whole financial year, before the pandemic struck:

Dharshini David
(@DharshiniDavid)

Gov deficit tops record £62bn in April – bigger than shortfall for year as a whole had been forecast in March Budget due to emergency support for virus impact. Gap plugged largely by borrowing but scale of shortfall underlines tax/spending changes inevitable ahead.

May 22, 2020

Her colleague Kamal Ahmed has some historical context, for those who can’t remember 1993 (my main memory is of a young Shane Warne….)

Kamal Ahmed
(@bbckamal)

Government borrowing in April estimated at £62.1 billion, £51.1 billion more than in April 2019; the highest borrowing in any month on record (records began in January 1993) @ONS Extraneous fact – Mr Blobby and Meat Loaf were topping the charts in 1993 #changedtimes

May 22, 2020

Torsten Bell of Resolution Foundation says government borrowing is going to rocket this year, to protect us from even more economic harm:

Torsten Bell
(@TorstenBell)

This is just the tip of the iceberg – even if we do well in containing virus & reopening the economy borrowing this year will be the highest since the war. That borrowing is how we 1) protect family incomes 2) prevent a deeper recession 3) reduce permanent economic damage

May 22, 2020

John Hawksworth of PwC predicts the UK could borrow as much as £300bn in the current financial year — six times as much as previously planned.

John Hawksworth
(@jhawksworth5)

Striking that borrowing of £62bn in April alone was higher than @OBR_UK pre-crisis forecast of £55bn for 2020/21 as a whole. Quite likely now that borrowing this year will be over £300bn and that @bankofengland will facilitate this with an extra £100bn of QE at its June meeting https://t.co/2K7EMQdbW1

May 22, 2020

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

We start with some breaking news — UK government borrowing hit its highest level on record last month amid the Covid-19 pandemic, as retail sales across the country plunged at a record pace.

The Office for National Statistics has just reported that public borrowing in April is estimated to have surged to £62.1bn. That’s £51.1bn more than in April 2019, and the highest borrowing in any month since records began in January 1993.

Indeed, it’s almost as much as the UK borrowed in the whole of the last financial year:

Torsten Bell
(@TorstenBell)

Government borrowing hit an all time record high of £62bn in April – the same as the entire of last year https://t.co/3edsP56S47

May 22, 2020

This is an early sign of the massive cost of the government’s attempts to limit the damage of the Covid-19 crisis, including its jobs guarantee scheme.

But the ONS also cautions that “the effects of COVID-19 are not fully captured in this release”.

The ONS has also reported that retail sales across the UK slumped at an unprecedented rate in April.

Sales fell by over 18% compared with March, due to the widespread shutdown of non-essential shop, taking turnover down to its lowest level since 2005.

The ONS explains:

• The volume of retail sales in April 2020 fell by a record 18.1%, following the strong monthly fall of 5.2% in March 2020.
• All sectors saw a monthly decline in volume sales except for a record increase in sales for non-store retailing at 18.0% and a continued increase in sales for alcohol stores at 2.3%.
• The volume of clothing sales in April 2020 plummeted by 50.2% when compared with March 2020, which had already fallen by 34.9% on the previous month.

This comes as fears over the UK hospitality industry grow, with many pubs, bars and restaurants warning they will close some outlets permanently.

Stock markets are also under pressure, after China abandoned its long-held practice of setting a GDP target – presumably because growth has been so badly hit by the pandemic.

IGSquawk
(@IGSquawk)

European Opening Calls:#FTSE 5946 -1.14%#DAX 10912 -1.39%#CAC 4389 -1.28%#AEX 517 -1.14%#MIB 16904 -1.07%#IBEX 6603 -1.25%#OMX 1542 -0.90%#STOXX 2866 -1.34%#IGOpeningCall

May 22, 2020

More details and reaction to follow!

The agenda

• 7am BST: UK public sector net borrowing for April
• 7am BST: UK retail sales for April