Press release

24 Jan 2023 London, GB

Rise in borrowing remains less steep than the OBR forecast – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to the EY ITEM Club, provides analysis on the latest public finances data.

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  • Though December's outturn for public sector net borrowing was much higher than a year earlier, the fiscal deficit is running below the OBR's month-by-month forecast, particularly once differences around the treatment of student loans are factored in.
  • The recent fall in energy futures prices is expected to mean that borrowing in 2023-24 is significantly lower than the OBR forecast. However, given that energy support was always planned to be time limited, and that the Government's fiscal targets have a five-year horizon, the implications for the fiscal stance appear limited. 

Martin Beck, chief economic advisor to the EY ITEM Club, says: “Public sector net borrowing came in at £27.4bn in December – £16.7bn higher than a year earlier. Debt interest payments accounted for around half of the year-on-year overshoot, reflecting the very high rate of RPI inflation. Borrowing was also pushed up by the cost of the various support schemes to help households and businesses pay their energy bills.

“Nevertheless, these upward pressures were not unexpected, and the public finances are in slightly better shape than the OBR anticipated. December's outturn meant that borrowing totalled £128.1bn over the first nine months of fiscal year 2022-2023, which was slightly below the OBR's forecast of £130.8bn. Furthermore, the undershoot would have been larger still were it not for an assumption the OBR made about the impact of changes to the terms of student loans that the ONS is yet to factor into its data.

“The substantial fall in energy futures prices over the past few weeks is unlikely to make much difference to the government finances over the remaining three months of this fiscal year. However, if sustained, it appears likely to ensure that borrowing is significantly lower than the £140bn that the OBR expects for 2023-2024. Still, given the support schemes were only due to run for one more year, and the Government has adopted a five-year horizon for its fiscal targets, recent developments likely have few implications for March’s Budget. Indeed, it's hard to identify any major developments since the Autumn Statement that would have a material impact on the OBR's longer-run forecasts for the public finances, so the EY ITEM Club is not expecting to see scope for any major changes to policy on 15 March.”