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UPDATE 2-UK borrowing hits new record as Sunak readies spending plan

* UK borrowing hits 215 bln pounds in April-Oct

* Public debt near 2.1 trillion pounds

* Sunak to announce spending plans next week

* New borrowing forecasts also due Nov 25

* Retail sales stronger than expected in Oct (Adds detail)

LONDON, Nov 20 (Reuters) - Britain borrowed a record 215 billion pounds ($285 billion) in the first seven months of the financial year, highlighting the challenge facing finance minister Rishi Sunak as he prepares new spending plans.

Borrowing in October alone came in below all economists’ forecasts in a Reuters poll at 22.3 billion pounds, and September’s borrowing was also revised sharply lower.

But debt remained only slightly lower than a 60-year high as a share of the economy.

Separate official data published on Friday showed retail sales rose 1.2% in October, and were 5.8% higher than a year earlier, stronger than all poll forecasts.

However, retailers face a grim November with many shops closed due to the latest restrictions to slow the coronavirus pandemic which has hit Britain harder than other big economies.

The British government is on course to borrow close to 400 billion pounds this financial year, the highest borrowing relative to the size of the economy since World War Two.

“This is the responsible thing to do, but it’s also clear that over time it’s right we ensure the public finances are put on a sustainable path,” finance minister Rishi Sunak said.

The government’s Office for Budget Responsibility will publish new forecasts of borrowing on Nov. 25, and Sunak will unveil spending plans for the next financial year too.

The government has already said it will approve the biggest increase in military spending since the Cold War.

But newspapers reported Sunak would freeze the pay of teachers and police, and the government has refused to confirm it will keep foreign aid spending at 0.7% of GDP.

Public debt has surged and stood at 2.077 trillion pounds or 100.8% of annual economic output in October, the Office for National Statistics said.

Stronger growth in the economy in the third quarter meant that as a share of GDP, debt was down slightly from September’s peak of 101.2%, the highest level since 1960/61.

The ONS trimmed its estimate for April-September borrowing by 15.9 billion pounds after lower-than-expected spending on the government’s flagship job protection scheme and higher-than-expected value added tax receipts.

Britain, for now at least, can borrow cheaply to fund its spending surge, much of which is likely to end once the pandemic passes.

But the Bank of England has warned that some long-term economic damage or scarring is likely.

Last month the International Monetary Fund said Britain would probably need to raise taxes after the pandemic to fill the gap.

EARLY CHRISTMAS SHOPPING

Friday’s data show unexpected strength in the retail sector in October, before a four-week COVID lockdown took effect in England this month.

“Feedback from a range of businesses suggesting that consumers had started Christmas shopping earlier this year, further helped by early discounting from a range of stores,” the ONS said.

Retailers have bounced back strongly from the lockdown, with sales volumes 6.7% higher than before the pandemic.

Shifts in consumer spending have helped specialist stores such as bicycle and car part chain Halfords.

But much of the gain has been from online sales, and some sectors such as high-street clothes stores are struggling.

Fashion chains Peacocks and Jaeger fell into administration on Thursday, putting 4,716 jobs at risk. ($1 = 0.7537 pounds) (Editing by William Schomberg and Toby Chopra)

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