UK borrowing set to reach record high

The UK government has borrowed heavily to fight the coronavirus pandemic, with high levels of spending continuing despite falling tax revenues. (Reuters)
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Updated 22 October 2020

UK borrowing set to reach record high

  • Moody’s issues downgrade as it warns Britain ‘effectively has no fiscal anchor’ downgrade

LONDON: Britain’s government borrowing exceeded forecasts in September and over the first half of the financial year was more than six times higher than a year earlier, due to the huge cost of the coronavirus pandemic, official data showed on Wednesday.

Public sector net borrowing totaled £36.1 billion ($47 billion) last month, above the £33.5 billion forecast in a Reuters poll, although August’s figure was revised down by more than £5 billion to £30.11 billion.

Separately, the Office for National Statistics said annual consumer price inflation in September rose to 0.5 percent in September from 0.2 percent in August, when it had been reduced by a temporary scheme to promote dining in restaurants.

Economists polled by Reuters had on average predicted a rise in inflation to 0.5 percent.

British public borrowing is on course to reach a record £372 billion this financial year, according to forecasts in August from the Office for Budget Responsibility, equivalent to 18.9 percent of gross domestic product (GDP), the most since the Second World War. Driven by a surge in coronavirus-related spending and a fall in tax revenue after the biggest economic hit since at least the 1920s, borrowing in the first half of the financial year totalled £208.5 billion.

Wednesday’s figures also showed that public debt rose further above the £2 trillion mark to £2.06 trillion or 103.5 percent of GDP, its highest on this measure since 1960.

Ratings agency Moody’s downgraded Britain’s sovereign credit rating on Friday to the same level as Belgium’s and the Czech Republic’s, warning that Britain “effectively has no fiscal anchor.”

Financial markets have repeatedly shrugged off these warnings, though, and 10-year government borrowing costs of around 0.2 percent are only slightly above an all-time low struck at the start of the pandemic.

Economists polled by Reuters expect the Bank of England to launch a further £100 billion of bond purchases next month, adding to the £300 billion announced since March.

Earlier this month finance minister Rishi Sunak said rapidly rising debt made the country more vulnerable to any future spike in interest rates, but that for now his priority needed to be on supporting the economy.

US sanctions Chinese and Russian firms over Iran trade

Updated 59 min 32 sec ago

US sanctions Chinese and Russian firms over Iran trade

  • Four companies accused of ‘transferring sensitive technology and items’ to missile program

LONDON: The US has slapped economic sanctions on four Chinese and Russian companies that Washington claims helped to support Iran’s missile program.

The four were accused of “transferring sensitive technology and items to Iran’s missile program” and will be subject to restrictions on US government aid and their exports for two years, Secretary of State Mike Pompeo said in a statement.

The sanctions, imposed on Wednesday, were against two Chinese-based companies, Chengdu Best New Materials and Zibo Elim Trade, as well as Russia’s Nilco Group and joint stock company Elecon.

“These measures are part of our response to Iran’s malign activities,” said Pompeo. “These determinations underscore the continuing need for all countries to remain vigilant to efforts by Iran to advance its missile program. We will continue to work to impede Iran’s missile development efforts and use our sanctions authorities to spotlight the foreign suppliers, such as these entities in the PRC and Russia, that provide missile-related materials and technology to Iran.”

The Trump administration has ramped up sanctions on Tehran after withdrawing from the Iran nuclear deal in 2018.

Earlier this week, Pompeo met Kuwaiti Foreign Minister Sheikh Ahmad Nasser Al-Mohammad Al-Sabah, when the campaign of pressure on the Iranian regime was also discussed.

“I want to thank Kuwait for its support of the maximum pressure campaign. Together, we are denying Tehran money, resources, wealth, weapons with which they would be able to commit terror acts all across the region,” he said.

It is not yet clear how the incoming administration of Joe Biden will deal with Tehran and whether it wants to revive the nuclear deal which would be key reviving the country’s battered economy. The Iranian rial has lost about half of its value this year against the dollar, fueling inflation and deepening the damage to the economy.

Iran’s economy would grow as much as 4.4 percent next year if sanctions were lifted, the Institute of International Finance (IIF) said last week. 

The economy is expected to contract by about 6.1 percent in 2020 according to IIF estimates.