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How Will UK Government Borrowing Affect Investors?

The most recent public sector finance data has shown that government borrowing continued to soar in October in light of the COVID-19 pandemic. The Office for National Statistics has said UK borrowing rose to £22 billion during this period, which marks the highest October figure – and sixth largest borrowing figure in any month – since records began.

The government is estimated to have spent £71.3 billion on day-to-day activities last month, which was boosted significantly by the money spent on the Coronavirus Job Retention Scheme and the Self Employment Income Support Scheme. In addition to this, government tax receipts fell by £2.7 billion compared to 2019, due to significant falls in VAT, Business Rates and income tax collections dropping.

Whilst October’s borrowing was down compared to September’s, and still below what analysts had initially anticipated, the October figure has pushed the UK’s total debt to 100.8% of GDP (Gross Domestic Product – or a measure of the size and health of a country’s economy over a period of time). By exceeding one hundred per cent, we are spending more than we are getting in. Debt to GDP is now at levels not seen since the 1960s.

It is clear that off the back of this, COVID will likely not be the dramatic V-shaped recovery that we all desire. Extra borrowing will be required as we continue in our national tiered-lockdown system and continue to service the furlough scheme, which has been extended until March. It will take some time before life begins to resemble anything that could once be called ‘normal’.

That being said, investors should not panic. Interest rates remain at record low levels and the prospect of them going negative remains an option. The Bank of England has made clear its position to help us get out of this situation when called upon and have continued to fund the government’s spending commitments.

Whilst many companies face significant issues, this does not mean they are un-investable. Ongoing government support will provide a sound base for many companies to not only survive, but potentially to thrive. This, coupled with a resolution to lengthy Brexit negotiations, could breathe life back into the UK.

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