Latest borrowing data could change Hammond’s plans

Data is ‘welcome news’ for Chancellor and could lift austerity in Autumn Budget

The Chancellor of the Exchequer has been granted some breathing space for policy in his November Budget thanks to government borrowing figures released yesterday.

Data published by the Office for National Statistics (ONS) showed public sector borrowing fell by £800 million in June and net borrowing had reached its lowest year-to-date level for more than ten years.

The ONS recorded a June deficit of £5.4 billion on the public sector net borrowing excluding banks (PSNBEX) measure, down from £6.2bn for the same month of the previous year.

This followed on from lower year-on-year deficits in April, down to £6.6bn from £9bn in 2017, and May, down to £4.7bn from £7bn.

The budget deficit in the first three months of the fiscal year, April to June, amounted to £16.8bn, its lowest since 2007 and a significant 24.4 per cent drop from £22.2bn in the same period of last year.

If the pattern of the first three months were to continue throughout the fiscal year, the PSNBEX measure would come in at £29.7bn for the full year, well below the £37.1bn shortfall expected.

Economists believe this could give Chancellor Philip Hammond room to manoeuvre predicted austerity measures in his November Budget.

Looking ahead to the autumn, the Chancellor will be seeking extra cash to fulfil Prime Minister Theresa May’s recent promise of an extra £20bn spending for the NHS by the year 2023.

The Office for Budget Responsibility (OBR) has previously said tax rises would be required to raise these additional funds, as the government remains committed to reducing the budget deficit.

Under the current political pressures, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, predicted the Chancellor would plan to relieve austerity measures.

Tombs said: “Since the Chancellor’s target merely is to reduce cyclically-adjusted borrowing to below 2 per cent of GDP by 2020-21, he has scope to scrap the remaining austerity measures planned for the next two years.

“Given that the Conservatives now lag Labour in the opinion polls and Brexit must be seen to be a success, we see no reason why the chancellor wouldn’t opt to soften his plans in the Budget later this year.”

Howard Archer, chief economic advisor to the EY Item Club, said the figures were “welcome news” for the Chancellor going into the summer recess, but cautioned that much could happen in the remainder of the year.

Archer said: “The public finances continued their encouraging start to the fiscal year 2018-19 with another improved year-on-year performance in June.

“Of course, this is still early days in the fiscal year and there is a long way to go, with much likely to depend on how well the economy can hold up over the coming months after seemingly regaining momentum in the second quarter.”

hannah.burley@jpress.co.uk