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UK posts smallest August budget deficit in 10 years, sale tax revenues strong
September 21, 2017 / 8:43 AM / a month ago

UK posts smallest August budget deficit in 10 years, sale tax revenues strong

A man buys souvenirs at a souvenir shop in central London, Britain, September 13, 2017. REUTERS/Hannah McKay

LONDON, Sept 21 (Reuters) – - Britain unexpectedly posted its smallest budget deficit for any August since 2007, helped by record sales tax revenues for the month in a boost for finance minister Philip Hammond.

The deficit in August stood at 5.7 billion pounds, down 18 percent compared with the same month last year, the Office for National Statistics said on Thursday, citing figures that exclude state-controlled banks.

The shortfall for August was smaller than all forecasts in a Reuters poll of economists that had pointed to a much larger deficit of 7.1 billion pounds.

August’ s surprisingly strong performance followed an unexpected budget surplus in July, a boon for Hammond who is under pressure to relax his grip on spending when he announces budget plans in November.

Analysts have said they expect 2017/18 to be a difficult financial year for the government because of a slowing economy after last year’s Brexit vote and fewer one-off boosts to the public finances.

Value-added tax receipts rose 5.6 percent on the year to 11.6 billion pounds in August, the highest for that month on record, and stood 3.1 percent higher in the April to August period at 56.5 billion pounds.

The figures, which are based on forecasts for the coming three months, could be another sign that consumer spending is holding up despite rising inflation and weak wage growth.

Income tax and capital gains receipts, which were unusually strong in July, were almost flat in August at 13.2 billion pounds but were up 2.1 percent for the first five months of the financial year.

However, corporation tax revenues fell 4.3 percent to 4.8 billion pounds in August and were flat for the financial year so far.

Debt interest payments fell by nearly 4 percent to 4.6 billion pounds, reflecting slower growth in the retail price index - but were still up 17 percent in the year so far at 26.3 billion pounds, pushed up by the post-Brexit vote rise in inflation.

Around a third of British government bonds are linked to retail price inflation.

A move by the Bank of England to raise interest rates in November - something it signaled was likely last week - could increase debt payments further.

Britain has been struggling to fix its public finances since the budget deficit surged to around 10 percent of gross domestic product in 2010 after the global financial crisis.

Since then it has been cut steadily to 2.3 percent of GDP in the 2016/17 financial year which ended in March, its smallest since before the global financial crisis.

But the deficit is expected to widen again to 2.9 percent of GDP this year when Hammond will have fewer one-off factors to help him than last year.

Hammond has not committed to balance the budget until the middle of the next decade, giving him some flexibility to slow the current pace of deficit reduction if needed to support the economy through Britain’s departure from the European Union.

Reporting by Andy Bruce and William Schomberg; uk.economics@reuters.com; +44 20 7542 5109

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