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Government borrowing higher than expected at £10.5bn

Published 21/09/2016

Government borrowing fell in June to its lowest level since 2007 at £7.8 billion
Government borrowing fell in June to its lowest level since 2007 at £7.8 billion

Government borrowing was higher than expected in August after a disappointing surplus a month earlier.

The Office for National Statistics (ONS) said public sector net borrowing, which does not include public sector banks, dropped by £900 million to £10.5 billion year on year, against economists' forecasts for £10 billion.

Government borrowing for the fiscal year to date - the period from April to August - decreased by £4.9 billion to £33.8 billion, compared with the same period last year.

Alan Clarke, head of European fixed income strategy at Scotiabank, said. "It is a case of so far so good for the public finances this fiscal year. It is far, far too soon to expect to see any hint of a Brexit effect."

It comes after a lower-than-expected surplus of £1 billion in July, which was down £200 million on the same month last year, and lower than forecasts of £1.6 billion.

July figures are usually higher as self-employed people pay their income tax and businesses settle corporation tax bills.

In June, Government borrowing fell to its lowest level since 2007 at £7.8 billion.

The ONS said public sector net debt excluding banks climbed to £1.6 trillion, equivalent to 83.6% of gross domestic product (GDP).

Of the £10.5 billion borrowed in August, the ONS said £7.6 billion went towards the day-to-day activities of the public sector, while £2.9 billion was invested in public infrastructure.

It marks a slight rise in net investment from £2.5 billion a year earlier.

Taking a broader view, the ONS said annual borrowing has been on the decline since its peak in the financial year ending March 2010.

The Office for Budget Responsibility (OBR) forecasts public sector borrowing will fall £21 billion to total £55.5 billion in the current fiscal year.

Still, Howard Archer, chief European and UK economist at IHS Markit, says it is unlikely the Government will hit the fiscal targets set out by former chancellor George Osborne back in March.

"Public finances are still off track to meet the March budget target, which highlights the fact that the Chancellor really has limited ability to provide a boost to the economy in November's Autumn Statement if he is to maintain a semblance of fiscal discipline," Mr Archer said.

However, Chancellor Philip Hammond previously indicated that the Government could take advantage of the cheap cost of borrowing to push fresh investment into the UK in the hope of bolstering productivity.

The move would be a departure from the economic direction plotted by Mr Osborne, whose aim of achieving a budget surplus by 2020 was scrapped by Prime Minister Theresa May.

Mr Hammond will deliver the Autumn Statement, which outlines the Government's plans for tax and spending, on November 23.

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