UK public borrowing surges amid the rise in Omicron cases

By Puja Sharma

Government borrowing is higher than forecast even before the Omicron storm hits.

Even before the Omicron wave hit, public sector net borrowing was higher than forecast, coming in at £17.4 billion for November and it’s still the second-highest total for the month since records began back in 1993.

But this is the relative calm before the fresh Covid-19 storm, with consumer confidence, sapped as the new variant rips through the economy.  Many businesses are bracing themselves for a difficult journey ahead, with output and wages and tax paid out likely to be lower as demand for services in particular falls.

Impact of the new variant

The arrival of the Omicron variant is likely to slow GDP growth and lower tax receipts, as people spend much less in pubs and restaurants. That will mean that official forecasts by the Office for Budget Responsibility are likely to have underestimated the amount the government will need to borrow to cover spending in the coming year.

‘’As the cries for help from hospitality continue, the latest snapshot of the government’s finances show why the chancellor is hesitant in funding fresh life support for struggling firms,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.

Already the vaccine booster program has shown to be an eye-wateringly expensive necessity – and the mounting costs of the test and trace program have also helped push up government spending to £70.3 billion in November, almost £4 billion more than forecast. Rising inflation is another unwelcome pressure, with interest payments increasing by £0.4 billion compared to the same time last year.

Scant financial buffers

Other recent ONS data showed that many firms are already running on empty, with scant financial buffers to see them through another downturn.  While 13% of businesses said they had no reserves in early December which is the highest reported number since June 2020, while a quarter said that coffers were running low, with less than three months of cash to see them through.

As the booster program is super-charged and financial pressures on the NHS increase, while extra support is expected for many industries, December and January’s financial health check is likely to show a marked deterioration.

Higher tax receipts have softened the blow, with signs that the great resignation has led to higher-paid positions being sought and won.

Trade rules: another bump on the road

Fresh post-Brexit trade rules could add yet another throbbing headache to the financial pain for the government. As firms concentrate on stemming potential losses brought about by rising infections and curtailed economic activity, it seems many don’t have their eye on the ball of fresh customs controls being introduced.

According to another recent ONS survey, only a quarter of businesses that have imported goods and services in the last 12 months said they were fully prepared for new rules coming in on the 1st of January. The controls will mean more red tape and checks at ports, and could lead to fresh bottlenecks in the supply chain, which could be the last straw for some struggling import and export firms.‘’