Business

UK borrowing up as deficit grows to £5.1bn

The ONS predicts the government will borrow more this year than previously forecast and above Philip Hammond's £22.8bn target.

THE UK Government posted a larger-than-expected budget deficit last month, after a jump in spending.

The budget deficit widened to £5.1 billion in May, £1 billion higher than the same month last year, the Office for National Statistics (ONS) revealed on Friday.

Borrowing over the first two months of the financial year increased to £11.9bn, representing an 18 per cent increase on the same period in 2018.

The ONS said it now expects the government to borrow more money this year than previously forecast.

It said it now predicts borrowing to rise to £24bn for the financial year, £500m higher than previously expected, and above Chancellor Philip Hammond's £22.8bn target.

The ONS also confirmed that borrowing for April was £1bn higher than previously announced, at £6.8bn.

Government spending rose by £2.5bn during May, outpacing the £1.9bn increase in receipts.

The government received more money from residents as income tax revenues increased by £600m and National Insurance brought in an extra £700m.

VAT receipts rose by £500m, but corporation tax income declined by 0.8 per cent, its first annual fall in May since 2013.

The figures also revealed that public sector debt rose by £25bn to £1.8tn in May.

As a proportion of GDP, the debt shrank by 1.4 percentage points to 82.9 per cent.

Howard Archer, chief economic adviser at EY Item Club, said:

"On the basis of April and May, the deficit is headed for £28.3bn - but it is far too early to draw any conclusions as monthly public finance data can be prone to significant revisions as well as being influenced by specific factors.

"Much will depend on whether the economy can shrug off its current weakness as well as on Brexit developments."

Mike Jakeman, PwC senior economist, said: "The latest figures on government borrowing confirm that the public finances have been returned to relative health by the years of austerity.

"Given that the budget deficit is estimated at around 1 per cent of GDP in 2018/19 and interest rates remain very low, we do not consider a mild increase in borrowing to pose any risk to the health of the government's finances."

The publication of the latest government borrowing figures come after the Bank of England voted unanimously to keep interest rates unchanged at 0.75 per cent amid heightened no-deal Brexit fears.

The Bank also trimmed its expectations for second quarter growth, predicting gross domestic product will remain flat against a previous forecast for 0.2 per cent expansion, after official data showed the economy shrank by a worse-than-feared 0.4 per cent in April.

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