Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s economy has suffered a double-blow from the Covid-19 pandemic this morning – government borrowing has surged again, and car production has almost halved.
The UK borrowed £35.9bn last month to balance the books, the Office for National Statistics reports, which is a record high for an August.
That’s an increase of £30.5bn compared to August 2019 – and the third highest borrowing in any month since records began in 1993.
It means the UK has now borrowed £173.7bn since the start of the financial year in April, to cover the economic damage of the pandemic.
That’s £146.9bn more than in the same period last year and the highest borrowing in any April to August period (again, since 1993).
The ONS says the jump in borrowing was caused by a fall in tax receipts, and the ongoing cost of protecting the economy from the worst slump in decades.
- Central government tax receipts are estimated to have been £37.3 billion in August 2020 (on a national accounts basis), £7.5 billion less than in August 2019, with Value Added Tax (VAT), Corporation Tax and Income Tax receipts falling considerably.
- Central government bodies are estimated to have spent £78.5 billion on day-to-day activities (current expenditure) in August 2020, £19.5 billion more than in August 2019; this includes £6.1 billion in Coronavirus Job Retention Scheme (CJRS) and £4.7 billion in Self Employment Income Support Scheme (SEISS) payments.
Britain can currently borrow at record lows, with the Bank of England standing ready to expand its bond-buying QE programme (currently £745bn) if necessary. So there’s no short-term problem in financing this debt, and a sudden burst of austerity would risk derailing a fragile economy.
But yesterday, chancellor Rishi Sunak hinted that the Treasury will face ‘difficult decisions’ in the future, after he unveiled a new wage subsidy scheme. That plan will provide some support to workers brought back part-time, but probably won’t prevent unemployment rising sharply this winter.
And industries, such as the auto sector, are struggling as the coronavirus crisis hits demand at home and abroad.
The Society of Motor Manufacturers and Traders has reported overnight that UK car manufacturing fell 44% last month compared with August 2019. Factories suffered a slump in export, and a fall in domestic orders too.
Just 51,039 cars rolled off British production lines last month, down from 92,153 in August 2019, the SMMT says.
Mike Hawes, SMMT chief executive, explains:
“These are increasingly disturbing times for UK car makers and suppliers with the coronavirus crisis weighing heavily on the sector.
Companies are bracing for a second wave with tighter social and business restrictions making the industry’s attempts to restart even more challenging.
After hitting a three-month low yesterday, European stock markets are expected to rise a little today – on hopes that the deteriorating economic outlook might lead to more stimulus measures
- 7am BST: UK public sector borrowing for August
- 1.30pm BST: US durable goods orders for August