Budget deficit smaller than expected, but borrowing rises ahead of Brexit

The budget deficit was smaller last month than expected, but borrowing rose by more than a quarter ahead of the Brexit deadline on October 31, official figures have revealed.

Public sector net borrowing in August hit £6.418 billion, excluding public-sector banks, down from £6.917 billion in August 2018 and lower than the 7.15 billion predicted by economists.

The first five months since April has seen borrowing up 28% from the same period in 2018 and takes into account recent changes to the way the Office for National Statistics counts student loans – now considering that around half will not be repaid.

This added £12.4 billion to the borrowing figures for the 2018/19 financial year that ended in March, the ONS said.

With other changes to calculations, the ONS estimates the deficit for 2018/19 is £41.4 billion pounds rather than £23.6 billion previously reported — or 1.9% of GDP instead of 1.1%.

In March the Office for Budget Responsibility forecast public borrowing would rise from a 16-year low of 1.1% of economic output in 2018/19 to 1.3% of GDP or £29.3 billion in 2019/20.

But in July the OBR said it believes borrowing could jump by £30 billion a year by 2020/21 if the UK leaves the EU without a deal on October 31, triggering a recession.

Chancellor Sajid Javid has already declared he is “turning the page on austerity” and promised spending increases across several departments during his recent spending review.

Day-to-day spending, adjusted for inflation, will jump by 4.1% in the next financial year, with more money for education, healthcare and police, he said.

The numbers also show that public sector net debt hit 80.9% of GDP in August, excluding public-sector banks, or 72.7% once the effect of a temporary Bank of England lending scheme was stripped out too.