Economic Perspectives -
April 2021 borrowing: lower than in April 2020, but still substantial
The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic developments:
- Public sector net borrowing was £31.7bn in April 2021, compared with £47.3bn in April 2020. It undershot the OBR’s implied projected borrowing of £39.0bn for April 2021.
- In April 2021 central government receipts increased by £3.8bn compared with April 2020 and central government spending was down by £12.9bn, as the economy improved.
- Public sector net debt (PSND, including the Bank of England) continues to rise. At end-April 2021 the PSND was £2,171.1bn (98.5% of GDP).
- The targeted “underlying” PSND (excluding the Bank of England) also continues to rise. At end-April it was £1,946.4bn (88.3% of GDP), compared with £1,919.0bn (87.5% of GDP) at end-March 2021, the previous month.
- The debt-interest-to-revenue (DIR) ratio was 2.1% in the rolling 12-months to April 2021, compared with 3.5% a year earlier, and was well below the 6.0% target level.
- The ONS’s latest regional data showed London’s share of UK GDP increased further in 2019, emphasising the challenges faced by the Government’s “levelling up” agenda.
- London accounted for 22.7% of UK GDP in 2019, over twice the size of the North West (the largest English region outside the SE), three times the size of Scotland’s economy, over six-times the size of the Welsh economy and over ten-times the size of the Northern Irish economy.
- Taking London and the South East together, they accounted for 37.5%, a quite remarkable concentration of activity.
- London’s GDP per capita was £56.2k in 2019, a clear outlier, compared with the UK average of £32.9k.
- The SMMT reported that car production recovered in April 2021, though it was still 3.8% below the level of April 2019.
Latest from the Bank:
- MPC member Gertjan Vlieghe recently discussed three illustrative scenarios for the economy, with his personal assessment of the appropriate paths for the Bank Rate.
- In his central scenario, similar to the Bank’s May central projection though with more slack, “…the first rise in Bank Rate is likely to become appropriate only well into next year (2022), with some modest further tightening thereafter”.
- In his upside scenario, “…with signs of upward inflation and wage pressure beyond the temporary and base effects”, he said “…a somewhat earlier rise in Bank Rate would be appropriate. It would probably take until the first quarter of next year (2022Q1) to have a clear view of the post-furlough unemployment and wage dynamics, so a rise in Bank Rate could be appropriate soon after, along a slightly steeper path than in the central case”.
- In his downside scenario, where the economy would not recover as quickly as in the central case, he said “…it is still possible that monetary policy might be required to simulate the economy a little further to help eliminate slack and ensure inflation…does not…fall back below its 2% target persistently.”
Ruth Lea said “Even though borrowing in April 2021 fell compared with a year earlier, it was still very substantial. Indeed, it was the second highest April borrowing since monthly records began in 1993. Moreover, even though there may be some undershooting of the OBR’s borrowing forecast of nearly £234bn for FY2021, borrowing this financial year could still be around 10% of GDP. In addition, public sector net debt (PSND) as a % of GDP continues to rise. At end-April 2021 the PSND was 98.5% of GDP, the highest ratio since the 99.5% recorded in March 1962. There is, in other words, no room for complacency”.
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