UK government deficit worsens in September

The red ink at Westminster flowed more freely in September, although some economists appeared to be sanguine regarding the prospects for the public finances.

Public sector net borrowing (excluding public sector banks) jumped by £1.3bn versus a year ago to reach £10.6bn in September, according to the Office for National Statistics, ahead of the £8.5bn which economists had forecast, as both the current deficit and net investment rose.

"Estimates for the latest period always contain a substantial forecast element and the figures have to be considered in this light," ONS cautioned.

Financial year-to-date on the other hand, the deficit decreased by £2.3bn versus the same period of 2015 to £45.5bn.

In comparison to September 2015, the stock of debt grew by £39.5bn to £1,627.2bn, equivalent to 83.3% of gross domestic product (GDP).

The latter figure was one percentage point below the year ago level.

"Even before the vote to leave the EU, the OBR’s fiscal forecasts were looking optimistic. But the weaker economic prospects over the next few years as a result means that these forecasts are likely to be revised substantially in the Autumn Statement next month. Indeed, we think the OBR will present the Chancellor with forecasts for borrowing that are about £25bn higher in 2019/20 than the previous forecast.

"However, this shouldn’t trouble the Chancellor too much. In fact he has already suggested that he will allow an easing of the fiscal squeeze in the near term in order to provide the economy with some support. Austerity is far from over, but the fact that the economy is now not set to face a significant ramping up of the pace of fiscal consolidation over the next few years is another reason to think that growth won’t slow too sharply," said Paul Hollingsworth, UK economist at Capital Economics.