(Updates with reaction from Office for Budget Responsibility
and HM Treasury)
By David Milliken and Costas Pitas
LONDON Dec 21 Britain's budget gap narrowed
last month, keeping finance minister Philip Hammond on track to
meet his new, less ambitious deficit reduction goals, but the
country's fiscal watchdog said future months would pose a
Last month Hammond formally abandoned his predecessor George
Osborne's goal to run a budget surplus by 2020, as the Office
for Budget Responsibility pencilled in a big rise in borrowing
and weaker growth after Britain's June vote to leave the
Official figures on Wednesday showed borrowing in the first
eight months of the 2016/17 tax year fell by 11.5 percent
compared with a year earlier - more than enough to meet
Hammond's new goal to cut the full-year deficit by 10 percent to
68.2 billion pounds ($84.4 billion), or 3.5 percent of GDP.
But the OBR said this downward trend was unlikely to
continue and predicted borrowing over the next four months would
probably exceed levels seen a year earlier.
Borrowing over the next four months would only need to be
around 500 million pounds higher for Hammond to overshoot the
forecast the OBR made just a month ago - which is already nearly
13 billion pounds more than Osborne gave in March.
Weak growth in tax revenue has hampered government efforts
to reduce Britain's large budget deficit this year, even before
the economy has seen much impact from June's referendum.
The OBR expects this problem to deepen. A surge in
corporation tax revenue in October was not expected to persist,
and a one-off boost to property sales tax revenue in early 2016
would not be repeated.
Moreover, public spending was likely to rise due to greater
investment commitments and the rising cost of servicing
index-linked government bonds as inflation picked up, the OBR
Britain's finance ministry said there had been "significant
progress" in reducing borrowing but it was still too high.
Public borrowing in November alone fell 4.4 percent to 12.6
billion pounds, the lowest for any November since 2007 but less
of a drop than most economists had forecast in a Reuters poll.
In the longer term both the OBR and private-sector
economists see greater headwinds to deficit reduction.
"The Brexit-related fiscal challenge has yet to really
begin," Investec economist Chris Hare said.
The OBR forecasts growth will slow to 1.4 percent next year
from 2.1 percent in 2016, dragging down growth in tax revenue
and increasing spending on unemployment benefits.
In total the OBR expects the government to borrow 122
billion pounds more than planned over the next five years as
Britain leaves the EU.
Last year's budget deficit was 4.0 percent of GDP - higher
than in almost all big advanced economies - and Hammond still
expects to run a deficit of 0.9 percent of GDP in 2021, in
contrast to Osborne's goal of a surplus by 2020.
($1 = 0.8080 pounds)
(Reporting by David Milliken)