Government borrowing leaps by £2 billion

Chancellor Philip Hammond
Chancellor Philip Hammond

Government borrowing unexpectedly shot up last month as Brexit-induced inflation made debt payments more expensive.

The Office for National Statistics (ONS) said public sector net borrowing, excluding state-owned banks, increased by £2 billion to £6.9bn in June compared with the same month last year.

Economists had pencilled in a total of £4.8bn.

The deficit widened as the amount forked out on debt interest rose by a third to £4.9bn last month, as inflation drove up the cost of servicing index-linked Government bonds.

The ONS said total spending climbed by 8.3% to £59.9bn in June in contrast to 2016, while tax receipts lifted by 4.6% to £54.3bn.

Samuel Tombs, chief UK economist for Pantheon Macroeconomics, said the spike in Government spending was the key factor behind last month’s borrowing rise.

He said: “Although spending rose in most areas, a £1.2 billion increase in interest payments and £0.8bn rise in contributions to the EU’s budget, partly to correct for underpayments in previous years, were to blame for the particularly strong growth.”

Prime Minister Theresa May has vowed to deliver a balanced budget by the “middle of the next decade”, knocking back Chancellor Philip Hammond’s previous target of putting the public finances back in the black by 2020.

Mr Hammond faces an increasingly tough challenge to drive down the deficit, as consumer spending is squeezed by high inflation and sluggish wage growth, threatening to drag on the Government’s tax income.

The statistics agency said borrowing for the current financial year to date - April to June 2017 - rose by £1.9bn to £22.8bn compared with the same period last year.