UK deficit set to provide 'significant drag' on GDP growth

UK public sector borrowing in April was much higher than expected, according to initial forecast data, though borrowing for the last fiscal year was revised down.

Public sector net borrowing, excluding the publicly owned banks, shrank to £48.7bn for the year ending March, the Office for National Statistics said on Tuesday, revising down from the previous estimate of £51.7bn due to an upward revision to tax receipts growth.

The public deficit of £10.4bn in April was up by £1.2bn compared with the same month last year, well above the consensus expectation of £8.8bn and the highest April borrowing since 2014.

The rise in borrowing was due to annual expenditure growth of 5.9% outpacing revenue growth of 3.9%, which was partly held back by weak VAT receipts growth.

For the financial year ending March 2018, the Office for Budget Responsibility has forecast PSNB will grow to £58.3bn.

The weak VAT receipts growth in April was another sign that consumer spending growth has slowed recently, said Scott Bowman at Capital Economics.

Sam Tombs at Pantheon Macroeconomics said April’s public borrowing figures "suggest that the slowdown in GDP growth in the first quarter won’t be just a blip".

Although overall borrowing figures for the year ahead are largely based on forecast data and often revised in time, borrowing will certainly need to rise as last year's surge in self-assessment tax receipts will not be repeated.

Looking past one-off factors, Bowman said fiscal policy is "set to provide a significant drag on GDP growth over the next few years" - provided opinion polls prove correct and the Conservatives win a majority.