October 20, 2017 / 8:39 AM / in a year

UK posts narrowest September deficit for 10 years in boost for Hammond

LONDON (Reuters) - Britain’s budget deficit narrowed last month to its lowest level for any September in the past 10 years, in a boost for embattled Chancellor Philip Hammond ahead of next month’s annual budget.

Britain's Chancellor of the Exchequer Philip Hammond attends a joint press conference with the Secretary-General of the Organisation for Economic Co-operation and Development (OECD) Jose Angel Gurria at the Treasury in London, October 17, 2017. REUTERS/Matt Dunham/Pool

September’s deficit stood at 5.902 billion pounds, down almost 11 percent from the same month last year, the Office for National Statistics said on Friday, citing figures that exclude state-controlled banks.

The shortfall was much smaller than the median forecast of 6.5 billion pounds in a Reuters poll of economists.

With the first half of the 2017/18 financial year complete, government borrowing is down 7.2 percent on a the same period a year ago, even though the prospect of Britain’s departure from the European Union has weighed on the overall economy.

But the strong performance of the public finances so far this financial year probably overstates how much official borrowing forecasts are likely to be revised down next month, the body which compiles the forecasts said on Friday.

Still, the figures will likely cheer Hammond, who has been told his job is at risk by supporters of Britain’s departure from the European Union, who think he is too negative and is starving other ministers of funds needed to prepare for Brexit.

Hammond has also come under broader pressure from within the ruling Conservative Party as well as from the opposition Labour Party to loosen his grip on public spending when he presents his annual budget next month.

But his ability to relax his grip on spending looks limited after Britain’s budget forecasters said this month they were likely to cut their productivity growth forecasts, suggesting slower economic growth, and tax revenues, in the future.

“We suspect the Chancellor will find the funds he needs to deal with the most pressing demands, albeit without throwing the task of fiscal consolidation completely out of the window,” Investec economist Victoria Clarke said of the Nov. 22 budget.

For now, tax revenues remain healthy. Receipts from value-added tax on the sale of goods and services, income tax and the stamp duty property tax were higher than a year ago. But corporation tax revenues were down slightly.

Scotiabank economist Alan Clarke warned the second half of the financial year is set to be tougher, given self-assessed income tax receipts around the turn of the year will likely show a deterioration compared with 2016/17.

The finance ministry said on Friday it had made great progress in cutting the budget deficit by over two-thirds since 2010, but borrowing was still too high at over 150 million pounds a day.


Britain paid out 3.7 billion pounds in government debt interest payments, up 11.4 percent compared with a year ago and pushed up by a rise in inflation. Around a third of British government bonds are linked to inflation.

A move by the Bank of England to raise interest rates in the coming months — something it signalled in September was likely — could push up debt payments further.

Britain has been struggling to fix its public finances since the budget deficit surged to around 10 percent of gross domestic product in 2010 after the global financial crisis.

Since then it has been cut steadily to 2.3 percent of GDP in the 2016/17 financial year which ended in March, its smallest since before the global financial crisis.

Editing by Catherine Evans and Hugh Lawson

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