Britain’s budget deficit narrowed more than economists forecast in September as the housing-market recovery boosted stamp duty and rising spending lifted value-added tax.
Net borrowing excluding temporary support for banks was 11.1 billion pounds ($18 billion) compared with 12.1 billion pounds a year earlier, the Office for National Statistics said in London. The shortfall was less than the 11.3 billion-pound median forecast in a Bloomberg survey of 22 economists. Tax receipts rose 7 percent, the most since June, and spending climbed 2.5 percent.
Britain’s economic recovery has brought a resurgence in the housing market, putting Chancellor of the Exchequer George Osborne on course to undershoot his borrowing targets this year. The improvement may mean the government can sell fewer gilts this year than it projected in April.
“The economic recovery is starting to make its presence felt,” said Martin Beck, an economist at Capital Economics Ltd. in London. “The improvement in the housing market should play quite an important role in public finances now that house price are picking up as well as transactions. There will almost certainly be an undershoot now. This is good news for the government.”
The pound was little changed against the dollar after the data and was trading at $1.6122 as of 9:40 a.m. in London, down 0.2 percent on the day. The 10-year gilt yield was little changed at 2.73 percent.
In the six months through September, net borrowing narrowed by 9.4 percent to 56.7 billion pounds from 62.6 billion a year earlier, raising the prospect that Osborne will undershoot the 120 billion pounds projected in March. The Office for Budget Responsibility is due to announce new forecasts Dec. 4.
If the momentum is kept up, net borrowing could fall to about 105 billion pounds this year instead of the 120 billion pounds forecast in March.
The figures exclude coupon payments from the Bank of England’s Asset Purchase Facility and the 28 billion-pound transfer of Royal Mail Group Ltd. pension assets in April 2012.
The increase in tax income last month was the most for a September since 2010. It was driven by stamp duty on property purchases, which grew 254 million pounds compared with a year earlier, and VAT, which rose by 386 million pounds, the ONS said. The statistics office cautioned against reading too much into a 12 percent increase in income tax, saying the data is being distorted by timing effects. Income tax fell in August.
Osborne has reduced the deficit from a postwar high of 11 percent of GDP when he took office in 2010 to 7.4 percent last fiscal year. The chancellor has pledged to run a budget surplus by 2020, implying that austerity will continue beyond the current 2018 forecasting horizon.
In September, the Treasury received 4 billion pounds from the Bank of England’s gilt holdings and 3.2 billion pounds from the sale of a 6 percent stake in Lloyds Banking Group Plc. (LLOY) The proceeds boosted cash measures of the public finances but not net borrowing.
Only 568 million pounds of the Lloyds sale counts against net debt excluding state-controlled banks, representing the difference between the total proceeds and the 2.6 billion pounds deemed as assets held by the government, the ONS said. Net debt climbed to 1.21 trillion pounds, or 75.9 percent of gross domestic product.
Central government, which excludes state-owned banks, posted a cash requirement of 13.2 billion pounds last month, taking the total this fiscal year to 39.7 billion pounds. Planned debt sales are based on this measure and also take account of the cost of redeeming maturing gilts during the year.
With the economy accelerating, the Debt Management Office will probably sell 153 billion pounds of gilts in the year through March 2014, instead of the 155.7 billion pounds it forecast in April, and issue a similar amount the following year, George Buckley, chief U.K. economist at Deutsche Bank in London, said this month.
Proceeds from the initial sale of shares in Royal Mail Group this month will be recorded when the statistics office has decided how the treat the income in the government accounts. Issues include the treatment of employee shares, it said.
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