UK economy hit as people shop less than pre-Covid

Woman looking in shop window

Woman looking in shop window

Official figures paint a bleak picture for the UK economy as the government borrows and people shop less than before the coronavirus pandemic.

Retail sales fell by a more-than-expected 1.4% last month, continuing the fall from August.

Meanwhile, government borrowing rose to the second-highest September on record.

“Consumers are buying less now than they were before the pandemic,” said Darren Morgan of the Office for National Statistics (ONS), which released the numbers.

He added: “Retailers told us that September’s drop was partly due to many shops being closed for the Queen’s funeral, but also to ongoing price pressures, which prompted consumers to be cautious about their spending.”

It comes as the cost of living crisis continues to squeeze household budgets.

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Inflation – the rate at which UK prices are rising – rose to 10.1% in the last month and is expected to rise further.

Mr Morgan, director of economic statistics, said all types of stores saw sales fall, with grocery stores being particularly hard hit.

energy bills

Meanwhile, the UK is borrowing billions of pounds to limit the rise in energy bills for households and businesses.

Borrowing – the difference between spending and tax receipts – was £20 billion last month, up £2.2 billion from a year earlier, the Office for National Statistics (ONS) said.

This is the second-highest borrowing in September since monthly records began in 1993, according to the ONS.

The number is lower than in September 2020, at the height of the coronavirus pandemic, when the government borrowed to fund programs like furloughs, it said.

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Borrowing is likely to increase

However, economists warned that the national debt will continue to rise in the coming months.

The Office For Budget Responsibility (OBR) provides independent forecasts of how government decisions on things like taxes and spending will affect borrowing and growth.

She is due to give her latest forecast on October 31, when the chancellor presents his economic plan with detailed spending plans.

Carl Emmerson, deputy director of the Institute for Fiscal Studies (IFS) think tank, said government borrowing has been almost as expected so far in the first half of the year but warned it is likely to rise much higher.

“But that’s just a small indication of how much borrowing will be for the full fiscal year, as the huge costs of government support for household and business energy use only started in earnest this month.”

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The IFS forecasts borrowing could reach almost £200bn this year, “almost £100bn more than the OBR forecast”, he added.

Michal Stelmach, senior economist at KPMG UK, also warned that government borrowing is expected to “only get worse from October”.

The reason is the federal energy price guarantee for households and companies, the second cost of living rate and support for pensioners, he said.

Chancellor Jeremy Hunt said: “In order to stabilize markets, I have made it clear that protecting our public finances means that difficult decisions lie ahead.

“We will do whatever is necessary to reduce debt over the medium term and ensure taxpayers’ money is well spent to put public finances on a sustainable path while we keep the economy growing.”

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