Pound slides after UK government borrowing jumps in August and insolvencies rise – as it happened

Rolling coverage of the latest economic and financial news, as August borrowing hits highest level since 2020

August's jump in borrowing means there are difficult fiscal decisions" on the horizon for Rachel Reeves to tackle, says the EY ITEM Club.

Matt Swannell, chief economic advisor to the EY ITEM Club, explains:

In August, the Government borrowed 18bn, the largest August deficit in five years and 5.5bn more than the OBR expected. As the Budget approaches, this leaves the UK finances in a fragile position. So far this fiscal year, the Government has borrowed 83.8bn, outstripping the OBR's 72.4bn forecast.

However, the Government's performance against its primary fiscal rule will be judged by the progress made on the current budget, which accounts for how much it borrows to cover day-to-day spending. In August, the current budget deficit was 13.6bn, up from 9.6bn at the same time last year. Across the fiscal year-to-date, the current budget is in deficit by 62bn, well above the OBR's March forecast of 46.6bn. The OBR expects a marked reduction in current borrowing in the latter half of this fiscal year, so it looks like it will only become more difficult to carefully manage the day-to-day finances from here."

The pound has sunk on this data, and is testing support at $1.3500, it is the second worst performing currency in the G10 FX space today, and is lower by 0.33% vs. the USD. The UK's bond market is extremely fragile, 10-year and 30-year yields rose sharply on Thursday, although global long end yields were higher, the UK was the weakest performer across Europe and the US.

UK bond yields could rise further on this news, especially as the Bank of England is maintaining its careful and gradual' approach to loosening monetary policy. Although the BOE has reduced the amount of bonds that it is offloading from its balance sheet, especially long end bonds, they are still shrinking their balance sheet albeit at a slower pace. Thus, the BOE cannot be relied on to relieve pressure on the long end of the Uk Gilt curve.