Monday 19 August 2019

Blow for Chancellor Philip Hammond as public finances unexpectedly worsen

The Office for National Statistics said public sector net borrowing jumped by £500 million to £8 billion in October.

Budget 2017
Budget 2017

By Ben Woods, Press Association Chief City Correspondent

The UK’s public finances unexpectedly worsened last month, piling further pressure on Chancellor Philip Hammond who is facing a potential growth downgrade in the Autumn Budget.

The Office for National Statistics (ONS) said public sector net borrowing, stripping out state-owned banks, jumped by £500 million to £8 billion in October.

The move was above economists’ predictions of £7.5 billion, as debt interest payments hit a record high for the month at £6 billion.

Despite last month’s rise, the deficit excluding state-backed banks for the current financial year – April to October – hit its lowest level for a decade, dropping £4.1 billion to £38.5 billion.

The update comes as Mr Hammond braces for the prospect of a gloomy fiscal outlook in Wednesday’s Budget, with forecasts expected to show lower economic growth and higher borrowing.

Samuel Tombs, Pantheon Macroeconomics chief UK economist, said: “Public borrowing rose year-over-year in October, despite ongoing austerity measures, primarily because interest payments leapt by £1.2 billion.

“Interest payments on index-linked gilts jumped, due to the rise in inflation.

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UK public sector net borrowing in October 2007-17

“Public sector investment also rose £0.5 billion year-over-year, following weakness earlier this year.

“By contrast, year-over-year growth in tax receipts increased to 5.4% in October, from 4.6% in September and exceeded the OBR’s 2.7% full-year expectation.”

Sterling showed little reaction to the announcement, up marginally against the US dollar at 1.323 and rising 0.1% versus the euro at 1.128.

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