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Chancellor manages to miss government borrowing target by £1.9bn despite 17 year low in the deficit


Chancellor Philip Hammond manages to overshoot government borrowing forecast by £1.9bn despite 17 year low in spending deficit

  • Public sector net borrowing fell by £17.2billion to £24.7billion for year to March
  • Borrowing still £1.9billion higher than the £22.8billion forecast by the OBR
  • The update comes as Hammond kicked off search for next Bank of England chief 

Chancellor Philip Hammond has overshot the full-year government borrowing forecast despite the deficit reaching a 17-year low.

Public sector net borrowing, excluding state-owned banks, fell by £17.2billion to £24.7billion for the year to March, the Office for National Statistics (ONS) said.

But this was still £1.9billion higher than the £22.8billion forecast by the Office for Budget Responsibility (OBR) just last month.

Philip Hammond has missed the government's full-year borrowing forecast by £1.9billion

Philip Hammond has missed the government’s full-year borrowing forecast by £1.9billion

The deficit is at its lowest in 17 years, at 1.2 per cent of gross domestic product (GDP), down from 9.9  per cent at the height of the financial crisis a decade ago, the ONS added.

In March alone, borrowing jumped to £1.7billion, an increase of £900million year-on-year. Economists had predicted net borrowing of £400million for the month. 

Buoyant tax revenue growth meant that the deficit fell despite the increased spending.

Government receipts rose 5 per cent year-on-year in March following increases in income and capital gains tax receipts, up 6.4 per cent, and VAT receipts, up 3.2 per cent.  

Overall GDP growth has slowed over the past year amid Brexit-related uncertainty.

Total net debt rose to £1.8trillion, or 83.1 per cent of GDP, an increase of £22.1billion on the previous year, according to the ONS data.

The update comes as Hammond kicks off the search for Mark Carney’s replacement at the top of the Bank of England. 

John Hawksworth, PwC chief economist commented: ‘After a run of relatively good public finance data, today’s estimates were a little disappointing.

‘The bigger picture is one of significant improvement in the public finances.

The Bank of England is in the market for a new chief, with Mark Carney due to bow out

The Bank of England is in the market for a new chief, with Mark Carney due to bow out

‘While there are many political and economic uncertainties ahead, the fact that the public finances are in their best shape for 17 years should give the Chancellor some room for manoeuvre in his Autumn Budget and Spending Review.’

The Chancellor promised in his Spring Statement to spend £26billion on public services and investment if MPs vote to leave the EU with a deal.

But the outlook for fiscal policy has been ‘clouded’ by the extension of Brexit until October 31, according to EY Item Club chief economic adviser Howard Archer.

‘The Chancellor has repeatedly warned that a no-deal Brexit would inflict a significant short to medium-term hit to the economy – and he clearly wants to keep his fiscal options open should this occur,’ Archer said. 

‘We suspect that if there was ultimately a no-deal Brexit, there would be some loosening of fiscal policy to support the economy.’

 





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