Government borrowing in the month of May was only higher at the start of the Covid pandemic, despite a £3.5 billion increase in the tax take, the government still needed to borrow £17.7 billion in May.
Danni Hewson, AJ Bell head of financial analysis, comments on the latest public sector finances and retail sales figures:
Public sector finances
“The decision to increase employer national insurance contributions was a painful and unpopular one, but businesses were told the government needed their help to fill the black hole they’d found in the public finances.
“This set of figures shows the impact of that decision, and the tax take is up, but not by enough to counter increased running costs and inflation-linked benefit hikes.
“May’s borrowing came in at the highest ever for the month outside of the pandemic and will only add to speculation that the chancellor will have to announce more spending cuts or further tax increases at the next Budget if she wants to meet her fiscal rules and pay for her spending plans.
“One big shock could wipe out any headroom Rachel Reeves might have, and there are still question marks about how much of GDP should be spent on defence and where the money is going to come from.”
Retail sales
“How much people are prepared to spend in the shops is a good indication of how confident consumers are feeling, or not, about their personal finances.
“It’s interesting that on the day the latest the latest GfK survey suggests people were feeling a little less nervous in May after April’s bill hikes, retail figures show sales in the same period were significantly down.
“That moment of jeopardy at the supermarket till is back, even if food inflation isn’t anywhere near as hot as it was in 2023. Rising prices are making people think carefully once again about how much they are putting in their baskets.
“The weather is also playing its part. It’s hard to remember that couple of gloomy weeks in May when the UK is enjoying its current sweltering temperatures, but the drizzle forced people to alter bank holiday plans, and many had already splurged on their summer wardrobes and garden furniture to take advantage of April’s record-breaking sunshine.
“The current spell of good weather bodes well for this weekend’s food shop but worries about rising petrol prices may force people to reconsider that extra pack of burgers or that case of sparkling wine.”
