Government borrowing comes in lower than expected, giving Hammond much-needed boost

 
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Philip Hammond Announces U-turn On National Insurance Budget Increase
Chancellor Philip Hammond u-turned on his national insurance hike (Source: Getty)

Chancellor Philip Hammond remains on track to hit his deficit reduction target after the latest figures showed government borrowing in February was at its lowest since 2007.

The government has borrowed £47.8bn in the financial year-to-date, according to the Office for National Statistics (ONS).

Public sector net borrowing (excluding the banks bailed out during the financial crisis) fell to £1.8bn in February 2017, £2.8bn less than the same month last year. It was also less than consensus expectations of around £2.5bn for the month.

Read more: The UK government's deficit reaches lowest since financial crisis

Meanwhile the surplus for January was also revised upwards to £11bn.

The confirmation of the downward trend in the deficit will come as welcome news for the chancellor, after last week's humiliating u-turn on raising some national insurance contributions, one of his main Budget measures.

The government’s budget watchdog, the Office for Budget Responsibility (OBR), predicts the borrowing will total £51.7bn over the course of the 2016-17 financial year, ending in April, or 2.6 per cent of the UK’s GDP.

Since November the government has set itself the target of getting the UK’s deficit (aside from temporary fluctuations) below two per cent of GDP by 2020-21. This replaced the previous target of no deficit by that time.

Read more: Borrowing boost to government as deficit falls more than predicted

Chris Hare, an economist at Investec, said: “Especially with today’s favourable revisions to the receipts data in mind, it is clear that the Chancellor, Philip Hammond, has benefited from the stronger-than-expected performance in the UK economy since last June’s vote to leave the EU.

“Our big-picture view is that, with the economy set to avoid too sharp a slowdown over the next couple of years, a sustained reduction in the deficit should continue.”

The extra space below official borrowing forecasts means Hammond has slightly more “fiscal headroom”. Hammond has previously said the government will preserve money in case the Brexit process has any negative effects on the UK economy.

Michael Martins, an economist at the Institute of Directors, said: “As public sector spending is projected to continue to slow, this should translate into a reduced deficit and faster debt repayment, freeing up money to counteract any Brexit-related economic slowdown, should any arise.”

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