The gap between spending and borrowing shrunk to £1.3bn in July, down from £3.5bn a year ago, and well below the £2.7bn predicted by economists, according to Office for National Statistics data released today.
So far this year, borrowing has grown to £16bn, an increase of £6bn, or 60%, on last year – double the increase predicted for the year as a whole.
The widening deficit reflects an increase of 2.3% in central government receipts in the financial year to date compared to a 5.3% increase in spending, of which around two thirds was spent by central government departments and just below a third on social benefits.
The Office for Budget Responsibility said borrowing had risen relative to last year in each of the past four months.
“For the year to date, it is now up £6bn on a year earlier – already a little above the £5.7bn full-year rise implied by our March forecast,” it said.
Spending growth had picked up to around twice the rate assumed for the full year, it added.
“But only four months into the year, it is too early to say for certain that the deficit will exceed our March forecast,” it said.
Richard Hughes, macroeconomic policy unit research associate at the Resolution Foundation, said the figures could have implications for the government’s plans to boost spending.
“Crucially these higher borrowing figures come before recent decisions by the new government to turn on the spending taps, and complicate the government’s intention to increase public spending in the September spending round if they also want to remain committed to the current fiscal rules,” he said.
John Hawksworth, chief economist at PwC, said the latest data provided a further indication that the long period of falling deficits in the UK since 2009-10 was likely to go into reverse.
“This partly reflects a slowing economy and partly government action to cut taxes from April and ease off on austerity as we approach Brexit,” he said.
If, as expected, chancellor Sajid Javid added £2bn or more to planned public spending in 2020-21, this would further narrow the fiscal headroom available, he added.
“But supporting the economy through potential Brexit-related turbulence is likely to be the top priority in the Spending Review and Budget this autumn, even if this implies some further widening of the budget deficit next year," said Hawksworth.
