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The UK government borrowed £14.9bn in October, more than analysts expected and the second-highest figure for the month, according to official figures that confirm the continued pressure on public finances.
In the financial year to October, the deficit was £98.3bn, £21.9bn more than in the same seven-month period last year but less than forecast by the Office for Budget Responsibility in March.
The increased deficit reported by the Office for National Statistics is unlikely to deter chancellor Jeremy Hunt from responding to pressure from within the Conservative party for cuts in personal taxes in his Autumn Statement on Wednesday. Prime Minister Rishi Sunak on Monday insisted any cuts would be made in a “sustainable” way.
The UK deficit this year has broadly undershot predictions from the OBR, the government fiscal watchdog, as high inflation lifted UK tax receipts. Borrowing during the current financial year was £16.9bn less than the £115.2bn forecast by the OBR in March.
But Samuel Tombs of Pantheon Macroeconomics warned that the figures provided a “timely reminder that the task of restoring the public finances to a sustainable footing is far from complete”.
Responding to the ONS data, Hunt said: “We met our pledge to halve inflation, but we must keep on supporting the Bank of England to drive inflation down to 2 per cent. That means being responsible with the nation’s finances.
“At my Autumn Statement tomorrow, I will focus on how we boost business investment and get people back into work to deliver the growth our country needs.”
The deficit in October was worse than a forecast of £12bn from a Reuters poll of economists, reflecting higher than expected debt interest payments.
Nevertheless, economists said they expected the chancellor would retain a sufficiently generous amount of fiscal “headroom” against his key debt-reduction target to plough ahead with a modest fiscal giveaway in the Autumn Statement, as part of a bid to lift the economy ahead of a possible election next year.
The OBR was likely to judge the chancellor had a buffer of about £25bn against his main fiscal rule, said Ruth Gregory, deputy chief UK economist at Capital Economics. “With the election drawing nearer, the chancellor surely won’t be able to resist the temptation to unveil a pre-election splash.”
She added: “This won’t be a big fiscal loosening, rather a partial reversal of the planned tightening.”
Underscoring the UK’s continuing growth challenge, labour productivity fell in the third quarter and was only marginally up from before the pandemic.
UK output per hour worked in the third quarter was 0.3 per cent below the same quarter a year ago, according to separate data published on Tuesday by the ONS. The fall brings labour productivity to only 2.5 per cent above its 2019 level.
The ONS warned that estimates for labour productivity were subject to revision because of the high uncertainty over labour market statistics following the post-pandemic drop in response rates to the ONS labour force survey.