UK deficit in September smallest in a decade, reveals latest official data

The fiscal leeway of the Chancellor Philip Hammond is still expected to be reduced in next month's Budget: PA

The UK’s deficit in September was the smallest in a decade, according to the latest official data.

The Office for National Statistics reported that public borrowing last month was £5.9bn, lower than the £6.5bn expected by City of London analysts.

It was the smallest borrowing figure for a September since 2007. The deficit for August was also revised down by the ONS from £5.7bn to £4.7bn.

Borrowing for the 2017-18 financial year so far is £32.5, down £2.5bn on the same stage in 2016-17.

The figures leave the Government on course to undershoot the £58.3bn full-year borrowing forecast made by the Office for Budget Responsibility at the time of the March Budget.

Lowest September borrowing in a decade

However, the OBR recently signalled that productivity growth forecast downgrades over the next five years are likely to offset any near-term improvements in the public finances.

This could leave the Chancellor, Philip Hammond, without much extra leeway for spending increases or tax cuts if he wants to meet his own fiscal rules when he unveils his next Budget on 22 November.

“The net impact of these forecast changes is likely to be higher projected borrowing,” said John Hawksworth, chief economist at PwC.

“This could more than offset the likely undershoot this year, so reducing the Chancellor’s fiscal wriggle room in the Budget.”

Samuel Tombs of Pantheon noted that lower than expected borrowing this year primarily reflected a larger than anticipated squeeze on government spending, rather than significantly stronger tax receipts.

This financial year VAT receipts are up 3.7 per cent but income and capital gains revenues are just 2.3 per cent higher.

In recent weeks the Treasury has been keen to dispel suggestions that the public finances are improving and that space is being opened up for higher public sector pay and an easing of public sector austerity.

“Whilst we’ve made great progress getting the deficit down by over two-thirds, government borrowing is still far too high at over £150m a day,” said a spokesperson in response to Friday’s figures.

“We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services.”