UK budget surplus smaller than expected
The UK budget surplus came in lower than expected for July, according to figures released by the Office for National Statistics on Wednesday.
The surplus came in at £1.3bn last month from £3.5bn in July 2018. Economists had been expecting a surplus of £2.7bn.
Meanwhile, government spending rose 4.2% on the year, or £2.6bn.
Howard Archer, chief economic advisor to the EY ITEM Club, pointed out that July is typically a month where the public finances are in surplus, given that it sees many medium-sized and large companies (as well as oil and gas firms) make corporation tax payments, while the second payment on account for self-assessment liabilities is also due.
"But central government revenues were down 0.5% on a year earlier, reflecting a combination of weak activity and the generous increases in income tax allowances which came into force in April. At the same time, current expenditure has continued to run at a pace well ahead of that implied by the full-year plans," he said.
Thomas Pugh, UK economist at Capital Economics, said the small surplus wasn't enough to make up for the jump in borrowing since the start of the financial year and meant that government borrowing still looks like it will overshoot the Office for Budget Responsibility's forecast.
"Admittedly, receipts were dampened by less income from the proceeds of the Bank of England’s gilt holdings. But it seems likely that government borrowing will continue to overshoot the OBRs forecast over the next few months as the government ramps up spending on preparations for a no deal Brexit," Pugh said.
"What’s more, a change in the accounting treatment of student loans in September will raise the deficit by more than £10bn a year. However, we doubt this will prevent the Chancellor from loosening fiscal policy in a one-year spending review in September or in an autumn budget, either before or after Brexit. Just how far borrowing rises will depend on whether there is a deal or a no deal, or a delay."