U.K. Borrows Less Than Forecast in Pre-Budget Boost for Hammondby and
Net borrowing in October GBP4.8b instead of GBP6b forecast
Tax receipts jump 6.8% on year to highest October on record
Britain posted a smaller-than-forecast budget deficit in October as tax receipts jumped, handing a boost to Chancellor of the Exchequer Philip Hammond on the eve of his key fiscal statement.
Net borrowing stood at 4.8 billion pounds ($6 billion), down from 6.4 billion pounds a year earlier and below the 6 billion pounds predicted by economists in a Bloomberg survey, Office for National Statistics figures published Tuesday show. Tax receipts rose 6.8 percent and government spending grew 2.6 percent.
The data come as Hammond prepares to announce his Autumn Statement on Wednesday. While the deficit in the current fiscal year may come in lower than some economists forecast, the prospect of a Brexit-induced slowdown has led to warnings that borrowing could be 100 billion pounds more than forecast over the next five years.
“While Chancellor Hammond would have welcomed this morning’s improvement in the public finances, it is unlikely to be a sign of things to come,” said Scott Bowman, an economist at Capital Economics Ltd. in London. “This borrowing overshoot, along with weaker forecasts for GDP growth ahead, should prevent the chancellor from being too bold tomorrow.”
In the first seven months of the current fiscal year, the deficit was 48.6 billion pounds, down 10 percent on the year. The Office for Budget Responsibility will publish new forecasts on Wednesday, with economists expecting a significant revision from the 55.5 billion pounds for 2016-17 it forecast in March.
October is traditionally a strong month for tax receipts, and this year saw corporation tax jump by almost a quarter to 9 billion pounds, the highest for any October since 2010. Value-added tax rose 2.8 percent to the highest for any month on record. Stamp duty on share purchases posted their highest October ever.
The cash measure used to determine debt issuance widened to 55.2 billion pounds in the first seven months after posting a surplus in October. It points to a significant overshoot of the full-year forecast of 62.1 billion pounds.
Primary dealers surveyed by Bloomberg say the Treasury may need to borrow billions of pounds more than planned this year, though bills, rather than longer-dated gilts, will make up at least half of an increase.
Net borrowing was 4 percent of gross domestic product in the latest fiscal year and plans announced in March to cut it to below 3 percent in the current year will be hard to achieve. While Hammond has already ditched his predecessor George Osborne’s commitment to deliver a budget surplus by the end of the decade, he’s hinted that any fiscal giveaway will be limited.
“As the chancellor has made clear, the government is committed to fiscal discipline and will return the budget to balance over a sensible period of time, in a way that allows space to support the economy as needed,” the Treasury said in a statement after the release of the latest data.