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.

Government spending announcements
Chancellor of the Exchequer, Sajid Javid, has promised to increase spending across departments, which will raise public sector borrowing (House of Commons / PA)

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.

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