LONDON (Reuters) – Britain’s price range deficit unexpectedly widened in August, pushed by subdued tax receipts, an increase within the state pension and better EU price range funds, however Chancellor Philip Hammond in all probability nonetheless has room to ease his grip on spending later this yr.
FILE PHOTO: Chancellor of the Exchequer Philip Hammond leaves Downing Street in London, September 11, 2018. REUTERS/Toby Melville
The deficit final month stood at 6.753 billion kilos, virtually double the median forecast in a Reuters ballot and better than a shortfall of four.345 billion kilos in August 2017, the Office for National Statistics (ONS) mentioned on Friday.
While this marked the primary year-on-year improve in web borrowing for the month of August in three years, the shortfall is unlikely to ring alarm bells for Hammond.
The deficit for the primary 5 months of the present 2018/19 monetary yr was down 30.5 % from the identical level a yr in the past at 17.eight billion kilos, helped by a minimize within the estimated dimension of the shortfall in earlier months of the yr.
Hammond reiterated his concentrate on slicing Britain’s excessive debt ranges in an effort to enable him to spend extra. “This is good progress but we need to keep up our efforts so we can invest in our public services and our future,” he mentioned on Twitter.
Samuel Tombs, an economist with Pantheon Macroeconomics, mentioned the slowdown in tax receipts in August would possibly make Hammond just a little nervous as he prepares his annual autumn price range assertion.
But he would in all probability be capable to keep away from elevating taxes to pay for a rise in spending on the well being service promised by Prime Minister Theresa May.
“We expect the chancellor to ease off austerity measures in other areas too, ensuring that fiscal policy doesn’t dampen GDP growth next year” when Britain is because of go away the European Union, Tombs mentioned.
The deficit for August alone was exacerbated by a zero.6 billion pound improve in European Union price range contributions, in contrast with an unusually small outflow this time a yr in the past.
The ONS additionally pointed to a three.zero % annual improve within the state pension.
Overall, tax receipts final month edged up by an annual 1.6 % whereas spending rose 5.four %.
For the April-August interval, nonetheless, receipts have been up four.zero % whereas expenditure was up by only one.9 %.
Britain’s financial system has slowed because it heads for Brexit in March subsequent yr, however not by as a lot as feared on the time of the 2016 referendum resolution to go away the bloc.
Britain’s price range deficit stood at almost 10 % of GDP when Hammond’s predecessor, George Osborne, began a multi-year programme of public spending cuts in 2010.
It is predicted to fall under 2 % this yr, resulting in calls on Hammond from inside his Conservative Party to permit extra spending.
Public help for elevated ranges of tax to fund extra public spending has hit a 15-year excessive, the National Centre for Social Research survey confirmed earlier on Friday.