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Government Borrowing Under the Microscope

Estimates of government borrowing exceeding forecasts, release of US GDP figures, and rise in Australian CPI ahead of rate decision.

The Institute for Fiscal Studies are estimating that there is a 90% chance that UK government borrowing will exceed that of the OBR’s forecast for the 2027/28 tax year. The IFS continued by suggesting that borrowing would be £40bn more than expected, meaning that the UK’s budget deficit would be equivalent to 3.1% of GDP, having been upwardly revised from 1.7%.

Writing in an article titled ‘Chancellors’ asymmetric responses to good and bad news since 2010 resulted in more debt and a bigger state’, the IFS argue that in instances where public finances have deteriorated those heading up No.11 “have tended to accept higher borrowing, rather than announce offsetting tax rises or spending cuts”. As such, borrowing has risen far higher than expected.

UK government borrowing has been brought sharply into focus over the last few quarters, not least because of spending on Covid support measures and energy subsides. Indeed, for the 2022/23 financial year, government borrowing exceeded £125bn, equivalent to 5.1% of GDP.


Earlier this year, the UK’s debt-to-GDP also exceeded 100% for the first time since 1961. With government borrowing in May 2023 double that of May 2022, the growing budget deficit continued to feed into the UK’s national debt pile, which now stands at £2.6tn. Following this milestone in May, the OBR stated in July that “UK government borrowing costs have risen more than in any other G7 economy and been more volatile than at any time in the past 40 years”. Their report noted that this time last year – a period underpinned by the market’s rejection of Truss and Kwarteng’s mini-budget – saw a particularly high period of volatility for government gilts.

All eyes are now on the Chancellor Jeremy Hunt for his latest Autumn Statement, where the date has been confirmed as 22 November. Here, the OBR have been commissioned to prepare an economic and fiscal forecast to be presented to Parliament alongside his Autumn Statement.

All Eyes on US Growth and Inflation Data

Today will see the latest release of US GDP figures for Q2 2023, where the print is expected to come in at 2.1% on an annualised basis. US growth has continued to outpace its counterparts, with households, businesses, and the labour market reaming relatively resilient in light of monetary tightening, when compared against countries such as France, the UK and Germany. State and local government spending has also been supportive of US growth, with huge fiscal stimulus measure including the inflation reduction act helping to boost growth. Nevertheless, US exports – like many other economies – appear to be under pressure, and excess saving’s amongst households have been largely depleted. As such, all eyes are on the data release at 1330 this afternoon.

Concurrent to the release of US GDP figures is the release of US Core PCE data which is projected to come in at 3.7% for Q2. On a monthly basis, the annual core consumer price inflation rate slowed to 4.3% in August 2023, marking the lowest since September 2021. Policy makers will be keeping a close eye on these figures as speculation continues to grow around whether the Fed may hike again this year.

Australian Inflation Rises Ahead of October’s RBA Rate Decision

Yesterday saw Australian CPI (annualised) rise to 5.2% in August, marking an uptick of 30bps from July’s print. This represented the first time that the index had risen in four months and comes amid rising energy prices and an increase in rental costs. Indeed, rental costs alone have risen close to 8% on an annualised basis as the cost of living continues to bite. The uptick in headline inflation also comes ahead of the RBA’s rate decision next Tuesday on 3 October. This also will mark the first meeting of Michele Bullock as the Bank’s governor. Broadly speaking, the general market consensus is expecting to see the RBA hold their benchmark rate at 4.1%, though yesterday’s rise in inflation will no doubt raise some concern amongst policy markers.

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