Higher UK borrowing underscores budget headache for
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[November 21, 2017]
By William Schomberg and Estelle Shirbon
LONDON (Reuters) - British government
borrowing unexpectedly grew last month, underscoring finance minister
Philip Hammond's challenge as he weighs calls for more spending in his
budget on Wednesday against the prospect of weaker economic growth
Hammond is under pressure to help embattled Prime Minister Theresa May
in his new tax and spending plans, and he will not welcome some signs in
Tuesday's data that the economic slowdown this year is being felt in
government revenues, economists said.
The deficit, excluding state-run banks, stood at 8.0 billion pounds, up
6.9 percent compared with October 2016, the Office for National
Statistics said on Tuesday.
That contrasted with a median forecast that the shortfall would fall to
7.0 billion pounds in a Reuters poll of economists.
Rising debt costs, linked to Britain's higher inflation since the Brexit
vote, were a driver of the shortfall while corporation tax revenues fell
for a fourth month in a row and growth in value-added tax revenues
The figures contrasted with a recent run of better-than-expected
readings of the public finances that still leave Hammond on track to
beat his target for this year.
Borrowing in the first seven months of the financial year is down by
nearly 10 percent at 38.5 billion pounds.
Tuesday's data also showed the deficit for September had been revised
down by nearly 1 billion pounds.
But the challenge for Hammond further out looks like it is about to get
tougher, limiting his room for maneuver.
"We expect tomorrow's budget to be generally cautious, incorporating a
broadly neutral package of tax and spending changes," Paul
Hollingsworth, an economist with Capital Economics, said.
Britain's official budget forecasters are expected to cut their
forecasts for economic growth in the coming years because of the
country's stubbornly weak productivity record. Weaker growth would mean
lower tax revenues than previously thought.
Hammond was quoted as saying on Sunday that the government was heavily
constrained fiscally, "but we do have some room" and he said he would
seek to speed up house-building in his budget.
[to top of second column]
Britain's Chancellor of the Exchequer Philip Hammond visits an
engineering training facility in the West Midlands, November 20,
2017. REUTERS/Andrew Yates
Many voters say they are tired of seven years of spending cuts in many public
services, a factor behind June's election result which cost Prime Minister May
her parliamentary majority.
Britain has been struggling to fix its public finances since the budget deficit
surged to around 10 percent of gross domestic product in 2010 in the wake of 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
But public debt remains around double its level before the global financial
crisis at almost 90 percent of GDP, including the Bank of England's economic
Hammond has said he wants to balance the budget by the mid-2020s while at the
same time keeping some room to allow him to spend more if needed to support the
economy through Brexit.
As well as measures to boost house-building, Hammond is likely to announce the
latest push to improve Britain's weak productivity, a challenge which has become
more acute as exporters lose some of their access to EU export markets.
Employers group CBI said British factories have had their best month for orders
in nearly 30 years in November, boosted by the fall in the value of sterling and
by strong economic growth in Europe and beyond. [nL9N1M1010]
"Nonetheless, uncertainty continues to hold back investment and cost pressures
remain strong," Anna Leach, the CBIs' head of economic intelligence, said.
(Additional reporting by Andy Bruce; Writing by William Schomberg)
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