Government borrowing shows surprise £2bn rise

Updated: 

Government borrowing rose unexpectedly last month, hampering efforts to shore up the public finances as the UK economy looks set to slow.

The Office for National Statistics said public sector net borrowing, excluding state-owned banks, increased by £2 billion to £6.9 billion in June compared with the same month last year. 

Economists had pencilled in a total of £4.8 billion.

Prime Minister Theresa May has vowed to deliver a balanced budget by the ''middle of the next decade'', knocking back Chancellor Philip Hammond's previous target of putting the public finances back in the black by 2020.

Mr Hammond faces an increasingly tough challenge to drive down the deficit, as consumer spending is squeezed by high inflation and sluggish wage growth, threatening to drag on the Government's tax income. 

The statistics agency said the budget deficit for the current financial year to date - April to June 2017 - climbed by £1.9 billion to £22.8 billion compared with the same period last year.

The Office for Budget Responsibility (OBR), Britain's fiscal referee, expects the Government to record a deficit of £58.3 billion for the financial year to March 2018.

Focusing on Britain's debt pile, public sector net debt excluding state-owned banks jumped by £128.5 billion to £1.75 trillion, equivalent to 87.4% of gross domestic product (GDP).

The latest update on the budget deficit comes just a week after the OBR flagged the potential threats to the public finances in its first Fiscal Risks report. 

Putting the public finances through the same stress tests faced by banks, the watchdog said the Government's fiscal targets ''would be missed by a large margin''.

It added that the UK's debt was higher than before the banking crisis, meaning the UK's financial position was ''much more sensitive'' to higher inflation and interest rates.

Brexit had the potential to exacerbate potential financial shocks, the OBR said, while it also highlighted the risk of higher public spending if the Government responds to ''austerity fatigue''.

On productivity, it warned that if Brexit uncertainty shaved just 0.1 percentage points off growth over a 50-year period then the Treasury's coffers would take a £36 billion hit and the economy would be £97 billion worse off overall.

Responding to June's borrowing announcement, a Treasury spokesman said: "Today's release shows that our national debt, at £65,000 for every household, is still too high and leaves us vulnerable to any future shocks.

"That is why we have a credible fiscal plan to get debt falling and deliver the sound public finances needed for a stronger economy and higher living standards."