UK circulates August budget shortfall in ten years

LONDON: Britain out of the blue posted its smallest budget deficit for any August since 2007, helped by record sales tax revenues for the month in a enhance for finance minister Philip Hammond.

The deficit in August stood at 5.7 billion pounds, down 18 percent compared with the same month last year, the Office for National Statistics said on Thursday, citing figures that exclude state controlled banks.

The shortfall for August was smaller than all forecasts in a Reuter’s poll of economists that had pointed to a much larger deficit of 7.1 billion pounds.

August’s amazingly strong performance followed an unexpected budget surplus in July, a boon for Hammond who is under pressure to relax his grip on spending when he announces financial plan plans in November.

Analysts have said they expect 2017/18 to be a difficult fiscal year for the government because of a slowing economy after last year’s Brexit vote and fewer one-off boosts to the public money.

Value added tax gate rose 5.6 percent on the year to 11.6 billion pounds in August, the highest for that month on record, and stood 3.1 percent higher in the April to August period at 56.5 billion pounds.

The numbers, which are based on forecasts for the coming three months, could be another sign that consumer spending is holding up despite rising inflation and weak wage growth.

Income tax and capital gains receipts, which were oddly strong in July, were almost flat in August at 13.2 billion pounds but were up 2.1 percent for the first five months of the financial year.

However, corporation tax revenues cut down 4.3 percent to 4.8 billion pounds in August and were flat for the financial year so far.

Debt interest payments fell by nearly 4 percent to 4.6 billion pounds, reflecting slower growth in the retail price index but were still up 17 percent in the year so far at 26.3 billion pounds, pushed up by the post Brexit vote rise in inflation.

Around a third of British government bonds are linked to retail price inflation.

A move by the Bank of England to raise interest rates in November something it signaled was likely last week could increase 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 total 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, it’s smallest since before the global financial crisis.

But the deficit is expected to widen again to 2.9 percent of GDP this year when Hammond will have fewer one off factors to help him than last year.

Source: Reuters

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