UK borrows less than expected in July, raising hopes for Hunt

Britain recorded a smaller-than-expected budget deficit in July, leaving finance minister Jeremy Hunt on track, at least for now, to have some leeway to cut taxes later this year before an election expected in 2024.

Net borrowing, excluding state-owned banks, stood at 4.3 billion pounds ($5.49 billion) last month, official data showed on Tuesday, less than the median forecast of 5.0 billion pounds in a Reuters poll of economists.

In the first four months of the financial year, borrowing stood at 56.6 billion pounds.

That was almost 14 billion pounds more than the same period last year but was 11.3 billion less than forecast by the Office for Budget Responsibility (OBR) whose projections underpin the government’s fiscal plans.

Hunt and Prime Minister Rishi Sunak have so far faced pressure from lawmakers within their Conservative Party to cut taxes ahead of next year’s expected election which opinion polls suggest they will lose.

“As inflation slows, it’s vital that we don’t alter our course and continue to act responsibly with the public finances,” Hunt said in a statement after the data.

“Only by sticking to our plan will we halve inflation, grow the economy and reduce debt.”

The Office for National Statistics said public debt stood at 2.579 billion pounds or roughly 98.5% of gross domestic product, up almost 2 percentage points from a year earlier and holding at high levels last seen in the 1960s.

Interest costs rose by 1.5 billion pounds compared with July last year to 7.7 billion pounds, the highest for July since records began in April 1997. But a recent easing of Britain’s high inflation – which adds to payouts for holders of inflation-linked bonds – should ease that burden soon, the ONS said.

The public finances were boosted by inflows of self-assessed income tax receipts which are typically strong in July which stood at 11.8 billion pounds, 2.5 billion pounds more than in July last year.

Borrowing by Britain’s government soared during the COVID-19 pandemic and was pushed up further by last year’s energy price surge which prompted the government to spend around 40 billion pounds in subsidies for households and businesses.

($1 = 0.7831 pounds)