Overall public sector net borrowing (PSNB) increased sharply again in December. Following a downwardly revised £18.82 billion in November, last month's shortfall climbed to £26.58 billion. This was up from just £9.95 billion a year ago and the highest December borrowing since monthly records began in 1993. Excluding public sector banks (PSNB-X), net borrowing was £27.40 billion, up from £10.68 billion 12 months ago and also an all-time high for the month. In both cases, the red ink was boosted by a jump in spending on energy support schemes and an increase in debt interest. Changes to the way in which student loans are treated in the accounts also contributed to the large annual increase.

Central government debt interest was £17.3 billion, also an all-time high for December and largely reflecting the effect of rising inflation on index-linked gilts. In the financial year to December, the public sector borrowed £128.1 billion, £5.1 billion more than that borrowed in the same period last year, but £2.7 billion less than forecast by the Office for Budgetary Responsibility (OBR). This put public sector debt at £2,503.6 billion or around 99.5 percent of GDP, a level not seen since the early 1960s.

Today's update underlines the task facing the government as it tries to get its fiscal house in order. It also leaves the UK ECDI (minus 4) and ECDI-P (minus 5) close enough to zero to signal that overall economic activity is still performing much as expected. This should keep the BoE on course for another hike in Bank Rate next week.

Overall net borrowing is put at £18.3 billion in December.

The public sector net borrowing requirement (PSNB) is the difference between the sector's receipts and expenditure and so provides a simple measure of government fiscal policy. In response to the global economic crisis in 2008/09 the UK government introduced a number of measures designed to show the underlying state of public sector finances by omitting temporary distortions caused by financial interventions. It bases its fiscal policy on these measures. To this end, the underlying gauge of government borrowing watched most closely by financial markets is the PSNB-X which takes overall net borrowing (PSNB) but excludes public sector banks.

Changes in public sector finances can be used to determine the thrust of the government's fiscal policy. Generally speaking when the government has a rising deficit (or falling surplus) it is loosening its fiscal stance with a view to boosting economic activity. When its deficit is falling (or surplus rising), fiscal policy is being tightened in order to slow economic growth. However, sometimes changes in government financial positions can be due to factors outside of the government's control and do not signal an explicit shift in policy. This means that great care is needed in interpreting the data.