UK government borrowed less than expected in 2022

May 2, 2023

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UK government borrowed less than expected in 2022

The latest data shows the UK government borrowed less than expected in 2022, despite heavy spending on helping with energy bills and facing higher borrowing costs.

Borrowing was estimated at £139.2bn in the year to 31 March. Which was less than had been predicted and gives ministers further elbow room for possible tax cuts ahead of the next election, several analysts have predicted.

The chancellor said the government was still borrowing at an alarming rate, with the amount borrowed last year equivalent to 5.5% of the value of the UK economy - the highest percentage since 2014, excluding the pandemic.

However, the borrowing figure was lower than the £152bn predicted by the government's forecaster, the Office for Budget Responsibility, at the time of the Budget announcement in April this year.

The Office for National Statistics (ONS) said the government borrowed £21.5bn in March alone, the second-highest March figure since monthly records began in 1993.

The government's borrowing costs jumped last year as interest rates rose around the world and spiked after former chancellor Kwasi Kwarteng proposed a swathe of tax cuts without explaining how he would fund them.

In response to this, the Chancellor reversed most of the plans easing concerns on financial markets. However, these borrowing costs remain relatively high and the UK is set to be one of the worst performing major economies in the world this year, according to the latest data published by the International Monetary Fund.

All in all, the ONS said public sector net debt at the end of March 2023 was £2.53 trillion - equivalent to around 99.6% of the value of the whole UK economy and a level not seen since the early 1960s.

US economic growth slows as firms cut investment

The US economy slowed in the first three months of the year, as businesses reduced investments in the face of higher borrowing costs.

The economy grew 1.1% on an annual basis, the Commerce Department said. This figure was down from a rate of 2.6% in the prior quarter, despite strong elements of consumer spending.

Analysts are watching feverishly to see how the world's largest economy handles a mix of higher interest rates and rising prices. The latest report on gross domestic product - the widest measure of economic activity - showed the economy has now grown for three quarters in a row.

The US economy had contracted in the first half of last year as trade flows adjusted from the pandemic and higher borrowing costs led to a sharp slowdown in home sales.

But a strong job market has kept consumer spending - the main driver of economic activity - resilient, despite rising living costs, helping to defy predictions of a recession.

Spending was up 3.7% on an annual basis in the January-to-March period.

Most recently, the US central bank has pushed interest rates to more than 4.75%, from near zero last March, moving aggressively to try to slow the economy and ease the pressure that continues to push up prices.

Since the campaign started, inflation - the rate at which prices rise - has dropped back, falling to 5% in March, but it remains higher than the bank's 2% target. Meanwhile firms - especially in sectors such as housing, finance and tech where low borrowing costs had fuelled growth - have been growing at a more cautious rate.

Recent weeks have been marked by announcements of job cuts from many big businesses, including consultancy Deloitte, manufacturer 3M, retailer Gap and the tech giant, Meta.

The most recent report showed the biggest drop in business investment in equipment since the pandemic in 2020, falling 7.3% on an annual basis.

Analysts say they expect further pain ahead as the job market weakens and banks grow more wary of lending after a string of US bank failures last month.

Euro zone economy grows by a mere 0.1% in first quarter

The euro zone economy grew by a marginal 0.1% in the first quarter of the year, preliminary figures showed Friday, even as Germany’s GDP flatlined over the period.

The print came in below analyst expectations, with a Reuters poll of economists previously forecasting quarterly growth of 0.2%. The economy expanded by 1.3% on an annual basis, just missing an outlook of 1.4%.

Earlier this month, statistics agency Eurostat had revised down its fourth-quarter 2022 gross domestic product estimate for the euro zone from 0.1% quarterly growth to zero, following 0.4% expansion in the third quarter.

The small first-quarter growth signal comes as economic performance contends with persistently high inflation. Energy prices have been a key driver over the past year, as European consumers progressively lost access to Russian supplies in the wake of Moscow’s full-scale invasion of Ukraine. 

Europe’s leading economies diverged in their first-quarter performance, national figures showed Friday. The German economy stagnated over January-March, compared with the previous three-month period. It was up 0.2% on an annual adjusted basis and 0.1% lower on a non adjusted basis due to one extra working day in the prior year, German statistics agency Destatis said.

France’s GDP meanwhile picked up by 0.2% in the first quarter, Insee statistics revealed, despite a spate of widespread strikes that slowed activity sparked in protest of President Emmanuel Macron’s planned pension reforms.

Irish GDP was a notable weak spot, declining by 2.7% in the previous quarter, while Portugal’s economy grew by 1.6%.

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