Long-term UK government borrowing costs are holding close to secular highs, as pressures on the budget deficit continue to grow. The DMO is shifting to shorter-term borrowing in response. Tax receipts have been solid, but there is still little control on spending, as the PSNB ex continues to widen. Public sector net borrowing over 2024-25 was £11.0bn higher than forecast by the OBR in March.
The Labour Party is pandering to Reform, which has gained in recent opinion polls and local elections. Farage has claimed he would scrap the two-child benefit cap, which is expected to cost at least £3.5bn a year by 2029, and reinstate winter fuel payments for all pensioners, which would add at least £1.5bn to government costs per year. Sir Keir Starmer has since retreated on the government’s plan to restrict how many pensioners receive winter fuel payments and is now looking to cut the two-child benefit cap.
Growth was more positive in Q1. Nevertheless, without significant improvements in the supply side of the economy, inflationary tendencies will persist. The latest acceleration in both headline and core CPI inflation in April underscored the point. The CPI for water supply jumped 26.4% y/y and the CPI for sewerage collection also climbed 25.9% y/y.
