U.K. Government Borrowing Unexpectedly Jumps

Above: Chancellor Hammond will hope the recent data are just a blip. Image © Foreign and Commonwealth Office, Reproduced Under CC Licensing.

Data from the ONS confirms the U.K. government was forced to borrow more money in October than anticipated, drawing questions on just how well the Government's deficit reduction programme is going.

According to data on Public sector finances from the ONS, borrowing in October 2018 was £8.8BN, £1.6 billion more than in October 2017; this was the highest October borrowing for three years (since 2015).

Markets had forecast net borrowing to come in at £5.35BN, but the ONS delivered a reading of £7.96BN.

According to the ONS data, October’s rise in borrowing is centred largely on a 6.6% year-over-year increase in central government expenditure, which greatly exceeded the 2.7% rate anticipated by the Office for Budget Responsibility for the whole year.

Interest payments also grew strongly, primarily due to an unusually large increase in the RPI index two months earlier, while spending on goods and services jumped by 8.9%.

"Hefty public borrowing in October has brought the run of good news on the public finances to an abrupt end, though it’s too soon to conclude that the Chancellor is set to miss the forecasts laid out in last month’s Budget," says Samuel Tombs, Chief U.K. Economist at Pantheon Macroeconomics.

Image courtesy of Pantheon Macroeconomics.

The data will disappoint the Chancellor Philip Hammond who in budget 2018 indicated the ongoing improvement in public finances will allow him to expand expenditure in 2019.

He will be hoping the data is a blip and not the start of a more negative trend.

Nevertheless, for now the broader trend suggests this might just be a blip.

Borrowing in the current financial year-to-date (YTD) was £26.7BN: £11.2BN less than in the same period in 2017; the lowest year-to-date for 13 years (since 2005).

Image courtesy of Pantheon Macroeconomics.

"The modest fiscal stimulus planned for next year still could go ahead, given that the Chancellor incorporated £15B of "fiscal headroom" into the Budget plans," says Tombs.