KPMG comments on today’s public sector finances data

“Borrowing halves but the fiscal outlook is riddled with uncertainty” says Michal Stelmach, senior economist at KPMG UK.

“Public sector net borrowing came in at £7.8 billion in December 2023, down significantly from £16.2 billion a year earlier. This was mainly due to a large drop in debt interest payments which reflected a fall in monthly RPI inflation in October, while the energy price schemes, which contributed to spending last winter, are no longer in place. Indeed, government spending on subsidies and other current grants, which included the cost of the Energy Price Guarantee and other support schemes, was down by £5.9 billion on a year ago.

“The coming months should see the public finances continue to improve on the back of lower subsidy payments and the ongoing tightness in the labour market. Coupled with a 70 basis point drop in interest rate expectations since the Autumn Statement, this could potentially boost the Chancellor’s headroom against his fiscal target by an extra £10 billion ahead of the March Budget.

“However, the wiggle room could easily be squashed if some of the downside risks materialise. The government’s implicit commitment to freeze fuel duty rates lowers revenue by £6 billion a year relative to current plans, while the assumption that real spending on unprotected departments would have to fall by over 2% a year is largely unrealistic in the absence of significant productivity improvements. That’s before considering the longer-term pressures from an ageing population, energy transition, and slowing workforce growth.”

 

-Ends-

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