Borrowing rises but still offers ample room for Chancellor
By Oliver Haill
Date: Friday 21 Sep 2018
(Sharecast News) - UK government borrowing was higher than expected last month, official figures have showed, but is sill on course to allow the Chancellor plenty of leg room to increase spending in his coming Budget.
Public sector net borrowing, excluding stakes in banks, rose to £6.75bn in August from £4.35bn in the same month last year, versus expectations of £3.4bn.
Even though departmental spending picked up in August, borrowing for the year to date was still down £7.8bn or 30.5% at £17.8bn as the estimate of borrowing in the first four months of the fiscal year was revised down to £11.0bn, from £12.8bn.
The Office for Budget Responsibility's full-year forecast is for growth of 3.9%m to £37bn.
Howard Archer, chief economic adviser to the EY Item Club, said: "There will be one, possibly two, more releases before the OBR finalises its forecasts for the Budget. Although borrowing continues to run well below 2017-18 levels, the fact that revenue growth is only running in line with its previous forecast and the likely temporary nature of the undershoot in spending means that major changes to the OBR's projections are looking increasingly unlikely.
"This means the Chancellor may need to use revenue raising measures, or tolerate higher borrowing, in order to fund the extra spending planned for the NHS."
Capital Economics said its forecasts remain for borrowing to come in at £34bn this year, below the £37bn forecast by the OBR.
Capital economist Andrew Wishart said he thinks the OBR "is likely to revise its forecast down in November, giving the Chancellor room to deliver the promised increase in health expenditure without having to increase taxes or make cuts elsewhere".
August's deterioration in growth in tax receipts will make the Chancellor a little nervous, said Sam Tombs at Pantheon Macroeconomics, noting that central government receipts rose by just 1.6% year-over-year, the lowest growth, outside of months distorted by changes in the dividend tax rate, since November 2015.
Tax receipts, however, are volatile, he said, and a large proportion of the rise in overall borrowing also reflected volatility in two spending components, "which is unconcerning".
If the year-on-year trend in borrowing in the first five months of this year is maintained, it will total £27.7bn - or 1.3% of GDP this year, or if borrowing merely matched last year's level in the final seven months of this fiscal year, it would total £32bn, £5bn lass than the OBR predicted and 1.5% of GDP.
"Borrowing, therefore, is on track to undershoot the Chancellor's 2020/21 cyclically-adjusted limit of 2% by a comfortable margin," Tombs said.
"At the very least, he won't need to announce offsetting tax rises to fund the extra money that recently has been earmarked for the NHS. Indeed, faced with pressure from his own MPs to boost his party's opinion poll standing and the political imperative to show that the economy has prospered after leaving the EU in March 2019, we expect the Chancellor to ease off austerity measures in other areas too, ensuring that fiscal policy doesn't dampen GDP growth next year."
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