Public finance deficit much lower than expected

This story is over

Public finances showed a much smaller than expected deficit in October but still looked weak for the year as a whole.

The news comes just a day before the Chancellor of the Exchequer Philip Hammond is expected to unveil plans for heavier public borrowing following June’s Brexit vote.

Britain ran a budget shortfall – excluding state-owned banks – of £4.8 billion last month, 25% lower than in October 2015, the Office for National Statistics said on November 22, and below all forecasts in a Reuters poll of economists.

This marks a sharp improvement from earlier in the year, when borrowing was falling much too slowly to meet government targets – even before any major impact from June’s referendum.

But it still looks too little of an improvement to meet budget goals set out in March.

Public borrowing in the first seven months of the financial year rose to £48.6 billion, down 10.3% from the same period in the previous year and the lowest for the first seven months of a tax year since 2008.

This is already close to the £55.5 billion forecast in March for the whole 2016/17 tax year by Britain’s independent budget watchdog, which pencilled in a 27% year-on-year fall in public borrowing.

On Wednesday, Hammond will present his first budget update since taking over as Chancellor of the Exchequer in July.

Hammond said on Sunday that his plan would not include a big new spending push because of ‘eye-wateringly’ high public debt levels, but will have some help for the economy and struggling families.

The ONS said net public debt rose to a record £1.642 trillion in October, equivalent to 83.8% of gross domestic product.

Last year’s budget deficit was 4.0% of GDP – higher than in almost all big advanced economies, and Hammond has scrapped his predecessor’s plans to run a surplus by 2020.