Chancellor Suffers Setback As Government Borrowing Rises In February

Chancellor Philip Hammond has faced a setback in his efforts to shore up the UK public finances after Government borrowing expanded last month.

Figures from the Office for National Statistics show public sector net borrowing, excluding state-owned banks, rose by £2.5 billion to £1.3 billion in February, compared with a £1.2 billion surplus last year.

The deficit excluding banks for the current financial year – April to February – continued to hit its lowest level for a decade, dropping £2.5 billion to £41.4 billion.

The update comes after Britain’s fiscal watchdog revised down its predictions for Government borrowing earlier this month, saying the deficit would now hit £45.2 billion for 2018 – £4.7 billion lower than its forecast in November.

However, the Office for Budget Responsibility (OBR) said growing financial pressure from an ageing population would cause Mr Hammond to miss his 2025 target for balancing the books by two years.

Sterling rose 0.5% versus the US dollar to 1.407 following the announcement, as traders reacted to separate data showing the strongest UK wage growth for nearly two-and-a-half years. Against the euro, the pound was up 0.2% to 1.145.

John Hawksworth, chief economist at PwC, said: “Today’s public finance data for February help to resolve one of the puzzles from the Spring Statement last week – namely, why the OBR did not revise down its borrowing forecast for 2017/18 by more.

“The new ONS data not only show the Government borrowing £2.5 billion more in February 2018 than February 2017, in part due to weaker self-assessment receipts, but also revised up estimated borrowing in the first 10 months of this financial year by £2.3 billion.

“This partly reflects tax receipts being somewhat weaker than originally estimated and partly, as the OBR foreshadowed, local authority borrowing being revised up.

“It is still possible that public borrowing for the financial year as a whole could come in slightly lower than the OBR’s £45.2 billion forecast, but any difference is likely to be small.”

The ONS said public sector net debt, excluding state-owned banks, increased by £68.1 billion to £1,762.6 billion in February, equivalent to 85.1% of gross domestic product (GDP).

Liz Truss, chief secretary to the Treasury, said: “We are approaching an important turning point, with the first sustained fall in debt as a share of the economy in 17 years.

“Our balanced approach means we can reduce the deficit while still cutting taxes for working people and investing in an economy fit for the future.”