UK national debt hits £2tn for first time; UK and US PMIs rise - as it happened

There is a tiny glimmer of good news in today’s UK public finances report.

Borrowing in June 2020 was revised down by £6bn to £29.5bn, because tax receipts and National Insurance contributions were actually stronger than the ONS first estimated.

A small win, but frankly we’ll take anything we can get right now.

As Hinesh Patel, portfolio manager at Quilter Investors says, there’s not much good news around:

“The government was certainly lacking in good news stories this week, but today’s official borrowing figures show a small win for the Exchequer given June’s borrowing figures were actually less than reported last month due to stronger than expected tax receipts. In addition, retails sales increased 3.6% on the month and are now 3% above pre-pandemic levels in February 2020, but still lag what is expected from a normal July.

“But this does not remove the fact that the UK is officially in a recession, Gfk consumer confidence - a forward indicator of confidence - remains unchanged overnight and now public sector net debt has breached the £2 trillion mark for the first time.

Ruth Gregory, senior UK economist at Capital Economics, says Britain’s record-breaking national debt reflects the ‘extraordinary support’ provided since the pandemic struck:

The £26.7bn the government borrowed in July was the lowest monthly borrowing figure since March as fiscal support started to unwind. Nonetheless, it is another huge sum and pushes borrowing in the year to date to £150.5bn. That is close to the deficit for the whole of 2009/10 of £158.3bn, which was previously the largest cash deficit in history, reflecting the extraordinary fiscal support the government has put in place to see the economy through the crisis.

She also fears that the recovery in retail sales in July will fizzle out this summer, as the government’s stimulus programme ends.

Overall, today’s figures bode well for consumption in Q3, but now that the initial boost from re-opening has passed and fiscal support measures are being phased out, further increases in high street spending in August and beyond will be more minimal.

We’ve also learned this morning that UK retail sales are now above their levels before the pandemic struck.

The ONS reports that retail sales volumes increased by 3.6% in July when compared with June, and are 3.0% above pre-pandemic levels in February 2020.

Much of this growth is due to a surge in online shopping -- with people spending 50% more via the Internet than before the crisis. Clothing spending, though, is still sharply lower than pre-Covid.

The ONS explains:

• In July, the volume of food store sales and non-store retailing remained at high sales levels, despite monthly contractions in these sectors at negative 3.1% and 2.1% respectively.
• In July, fuel sales continued to recover from low sales levels but were still 11.7% lower than February.
• Clothing store sales were the worst hit during the pandemic and volume sales in July remained 25.7% lower than February, even with a July 2020 monthly increase of 11.9% in this sector.
• Online retail sales fell by 7.0% in July when compared with June, but the strong growth experienced over the pandemic has meant that sales are still 50.4% higher than February’s pre-pandemic levels.

Here’s some snap reaction to the news that Britain’s national debt has hit the £2tn mark for the first time:

Charlie McCurdy, economist at the Resolution Foundation, says chancellor Rishi Sunak should resist tackling the UK’s debt mountain until the recovery is secured.

“The Government has now borrowed £150 billion since April as a result of the crisis, and efforts to fight it. The national debt has now hit £2 trillion, with more heavy borrowing due as the crisis continues.

“The reopening is the economy is showing signs of having an impact on borrowing though, with the Government spending £6.9 billion in July paying the wages of furloughed workers, down from £8.2bn in June. This 15 per cent fall is smaller than our estimate, based on separate ONS data, that the number of fully furloughed workers fell by around a third over this period, reflecting the introduction of partial furloughing in July.

“The priority for the Chancellor going forward should be to prioritise limiting the depth of the economic crisis, particularly given record low borrowing costs and the risk of a post-furloughing rise in unemployment.

“Only once the recovery is secured should the Chancellor turn to tackling the deficit, with tax rises needing to be a key plank of that plan.”

Rishi Sunak, the UK chancellor, has described today’s borrowing figures as a “stark reminder” that the government must return the public finances to a sustainable footing over time.

He also warns that the Covid-19 crisis has put significant strain on the public finances, due to the hit to the UK economy.

Tax receipts fell very sharply last month, forcing the government to borrow heavily to cover the shortfall.

The ONS estimates that central government receipts shrank by 16.7% compared with July 2019 to £56.6bn, including £40.4bn in taxes.

That’s due to companies making less profits, workers receiving smaller pay cheques (partly due to the furlough scheme) and people spending less in the shops (so paying less in VAT).

The ONS explains:

This month, tax revenue on a national accounts basis fell by 23.1% compared with July last year, with Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax receipts falling by 26.2%, 29.8% and 6.2% respectively.

Self-assessed tax returns were also sharply lower last month at £4.8bn, £4.5bn less than in July 2019.

Over the last four months, the UK has nearly borrowed as much as in the 12 months after the financial crisis.

The deficit surged to nearly £160bn in the 2009-2010 financial year, due to the cost of bailing out the banks and handling a deep recession.

But with the UK already borrowing £150bn since April, this year’s deficit could be double the previous record, as this chart shows:

This chart shows how Britain’s debt has now hit the £2tn level, and is now larger than the country’s annual economic output (GDP).

View image in fullscreen

Having borrowed £150bn already since March, the UK is on track to borrow more than £300bn this year, the ONS says.

View image in fullscreen

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Britain’s national debt has hit two trillion pounds for the first time, as the cost of fighting the Covid-19 pandemic continues to mount.

New figures from the Office for National Statistics, just released, show that public sector net debt rose to £2,004bn in July.

That’a an increase of £227.6bn over the last year, an astonishing surge in debt. It means the national debt is now 100.5% of GDP -- for the first time since March 1961, according to the ONS.

In its latest public finances report, the ONS says:

The coronavirus (COVID-19) pandemic continues to have a significant impact on the UK public sector finances.

These effects arise from both the introduction of public health measures and from new government policies to support businesses and individuals

The ONS also reports that public borrowing in July alone was £26.7bn. That’s £28.3bn more than in July 2019 (when the UK ran a small surplus) and the fourth highest borrowing in any month on record (records began in 1993).

Since April, the UK has borrowed £150bn -- a whopping £128bn more than a year ago. That’s the cost of the government’s stimulus programmes, support for the health service, and the plunge in tax revenues as companies hunkered down to ride out the pandemic.

This, the ONS adds, is the highest borrowing in any April to July period on record (records began in 1993), with each of the months from April to July being records.

More details and reaction to follow...

Also coming up today

After falling yesterday, European stock markets are on track fora small rally. But that would still leave the FTSE 100 close to its lowest level this month, amid anxiety over the strength of the global recovery.

We’ll get a better idea of the health of the global economy today, as data firm IHS Markit releases its latest surveys of purchasing managers from across the eurozone, the UK and the US.

These PMIs are expected to show that activity kept rising in August, which could reassure investors

The agenda

• 9am BST: Eurozone manufacturing and services PMI for August, flash reading
• 9.30am BST: UK manufacturing and services PMI for August, flash reading
• 11am BST: CBI industrial trends report
• 2.45pm BST: UK manufacturing and services PMI for August, flash reading
• 3pm: Eurozone consumer confidence report