Britain’s budget deficit is on course to be much higher this year than the government hoped, despite an unexpectedly large fall in public borrowing last month, official figures show.
The Office for National Statistics said public borrowing in June stood at £7.8bn, compared with £10bn in the same month last year and the £9.5bn predicted by the City.
Although the smallest June deficit for nine years allowed the new chancellor, Philip Hammond, to say the economy was in good shape to cope with the aftermath of the Brexit vote, the ONS figures show that deficit reduction in the first three months of the 2016-17 financial year was slower than forecast in George Osborne’s March budget.
Osborne envisaged borrowing being cut by around a quarter in the current year. But during the first three months of the financial year, slow growth in tax receipts meant there was an improvement of just over 8%.
The ONS said public sector net borrowing – the government’s preferred measure of the size of the budget deficit – stood at £25.6bn in April to June 2016, compared to £27.9bn in the same months in 2015. Assuming a similar performance for the year as a whole, the deficit would total almost £70bn, rather than the £55bn forecast by the Office for Budget Responsibility.
Analysts said the decision to leave the EU would lead to slower growth, with a knock-on effect on public finances.
John Hawksworth, chief economist at PricewaterhouseCoopers, said: “There was some good news for the new chancellor in today’s data, with public borrowing in June down by £2.2bn on a year earlier, following two months when the deficit had been stuck at around the same levels as in the previous year.
“Economic growth is likely to slow significantly after the Brexit vote, however, and this will take its toll on tax revenues. For 2016-17 as a whole, it therefore seems likely that the budget deficit will come in significantly higher than the OBR forecast back in March on the assumption of a vote to remain in the EU.”
Hammond said: “These public finance figures highlight the underlying strength of the British economy. Ahead of the referendum, monthly borrowing continued to fall, with the deficit in June the lowest it has been since 2007.
“As our economy now adjusts to reflect the referendum decision, it is clear we will do so from a position of economic strength.”
