The deficit in October came in wider than expected, in a piece of disappointing news for Philip Hammond on the eve of his Autumn Budget.
The Office for National Statistics reported on Tuesday that public borrowing was £8bn in the month, higher than the £7bn pencilled in by City of London analysts and up on the £7.5bn borrowed in the same month in 2016.
However, borrowing over the 2017-18 fiscal year to date (£38.5bn) is still better than in 2016-17 (£42.6bn), leaving the Chancellor on course to undershoot the Office for Budget Responsibility’s March estimate of of £58.3bn.
The ONS reported that government debt interest costs were £6bn in October, up on £4.8bn in the same month in 2016, reflecting the spike in inflation in the wake of the Brexit vote.
“A jump in interest payments was the main driver of the pick-up in year-over-year current government expenditure,” said Samuel Tombs of Pantheon.
The Chancellor had set himself a target of reducing the structural deficit to less than 2 per cent of GDP in 2020-21.
He had an estimated £26bn of leeway against that target in March, but that cushion is expected to be slashed on Wednesday as the Office for Budget Responsibility cuts its expected tax revenues over the coming years due to productivity growth forecast downgrades.
“Given the expected downward revisions to the OBR’s economic growth forecasts, a pretty poor medium-term outlook for the public finances should therefore restrict the Chancellor’s ability to provide a significant giveaway, if he wants to stick to his fiscal rules,” said Paul Hollingsworth of Capital Economics.
VAT receipts in October grew by 2.3 per cent, a slowdown from the 4 per cent rate over the fiscal year so far.
Corporation tax receipts were down slightly on the same month in 2016 at £4.3bn.
However, income tax and capital gains receipts were up 6.9 per cent at £12.8bn.