Boost for UK as budget deficit less than expected
Britain unexpectedly posted its smallest budget deficit for any August since 2007, helped by record sales tax revenues that could give chancellor Philip Hammond room to relax his grip on spending in an upcoming budget.
The deficit in August stood at £5.7bn (€6.4bn), down 18pc compared with the same month last year, the Office for National Statistics said yesterday, citing figures that exclude state-controlled banks.
The shortfall for August was smaller than all forecasts in a Reuters poll of economists that had pointed to a much larger deficit of £7.1bn.
August's strong performance followed an unexpected surplus in July, a relief for Mr Hammond who is under pressure to loosen spending constraints when he announces budget plans in November.
With almost half of the financial year complete, Mr Hammond looks on track to undershoot the £58bn borrowing target for 2017/18 set by Britain's official budget forecaster.
"All of this suggests that the chancellor should have room for some easing of austerity in his budget in November," said John Hawksworth, chief economist at PwC.
Last week, British Prime Minister Theresa May agreed to ease seven years of public sector pay caps, but only modestly and only for police and prison guards.
Her government also faces calls for more spending on the health service, housing, infrastructure and a further relaxation of the pay cap for public sector workers.
The finance ministry said it had made substantial progress in cutting the deficit but added that the national debt was still too high.
Analysts have said they expect 2017/18 to be a difficult financial year, in part because of a slowing economy after last year's Brexit vote.
But VAT receipts rose 5.6pc to £11.6bn in August, the highest for that month on record.
The figures, based on forecasts for the coming three months, could be another sign that consumer spending is holding up despite rising inflation and weak wage growth.
While government debt interest payments dipped in August, they were still up 17pc in the year to date, pushed up by the post-Brexit vote rise in inflation.
Around a third of British government bonds are linked to inflation.
A move by the Bank of England to raise interest rates in November - something it signalled was likely last week - could increase debt payments further. (Reuters)