UK borrowing figures set worrying tone for new financial year

Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

The UK Government borrowed £24.3 billion in April, as fiscal strain continues to grow as we enter the new financial year.

Government spending continues to rise at a relentless pace while tax revenues are not growing at the necessary pace to match it. Health and welfare costs are climbing and weaker economic growth is limiting the Treasury’s ability to generate stronger revenues. The result is a fiscal position that looks increasingly stretched.

Another contributing factor is the persistently high cost of servicing the nation’s debt. Political instability risks unsettling business confidence and financial markets at a delicate moment for the economy. Markets dislike uncertainty, particularly when government borrowing is already elevated and fiscal credibility is under international scrutiny. Fears that the Prime Minister and Chancellor could be replaced by a pairing less committed to the current fiscal rules is sending bond yields even higher.

What is particularly worrying is that these pressures are emerging at a time when the global economic environment is becoming more unstable again.

The ongoing tensions in the Middle East is creating fresh risks for government finances. Rising oil and gas prices are feeding into inflation, increasing costs for businesses and households alike. Higher inflation pushes up the cost of servicing inflation-linked government debt, while slower economic activity risks weakening tax receipts.

None of this points to an immediate economic crisis. But it does reinforce the sense that the UK economy is entering a more fragile phase, in which economic weakness, geopolitical instability and political uncertainty are beginning to feed into each other.

Among its UK locations, accountancy and advisory firm MHA has offices in Edinburgh and Aberdeen.