The UK government borrowed nearly double the amount than expected last month to fund the first stages of the cost of living care package, official figures published today show.
Britain’s debt pile swelled £11.8bn in August, much higher than the country’s official forecaster, the Office for Budget Responsibility (OBR), projected £6bn at the March budget, according to the Office for National Statistics (ONS).
An August record monthly debt interest bill of more than £8bn also led borrowing higher.
Soaring inflation has raised the amount of money the government pays investors that hold its debt.
A large proportion of Britain’s debt pile rises in line with the retail price index, an old measure of inflation, which has reached generational highs.
The government handed out the first installments of support to the poorest households in July to ease the burden of scorching energy bills.
The payments were announced by former chancellor and Tory leadership loser Rishi Sunak in May.
A government has to borrow money when it cannot cover spending with tax receipts. It means a country’s public finances are in deficit.
Borrowing is likely to accelerate in the coming months to fund prime minister Liz Truss’s move to freeze household energy bills at £2,500 for two years at a cost of around £150bn.
Today, the department for business, energy and industrial strategy (BEIS) sketched out details of Truss’s promise earlier this month that firms would get “equivalent support” to households.
The government will more than halve their energy bills for six months by covering the difference between the wholesale cost of energy and the actual price firms pay.
City A.M. has contacted BEIS to confirm if businesses will have to pay the money back in the future. Analysts said borrowing will surge if they do not.
“The “equivalent support” offered to businesses might boost borrowing if, for instance, firms are given grants or discounts on their business rates, instead of a state-backed loan,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.
A looming short-term borrowing splurge has rocked financial markets in recent weeks. Yields on UK government debt have soared, while the pound has slumped to its lowest level against the US dollar since the mid-1980s.
“The Chancellor would be wise to reassure financial markets at his fiscal statement on Friday that he will return debt in the medium-term to a sustainable path,” Ruth Gregory, senior UK economist at Capital Economics, said.