Govt borrowing at highest for three years in October

The figure was unexpected marks the highest October borrowing since 2015
The figure was unexpected marks the highest October borrowing since 2015

Government borrowing hit a three-year high in October after a steep rise in spending and a slowdown in tax receipt growth, according to official figures.

The Office for National Statistics (ONS) said public sector net borrowing, excluding state-owned banks, rose by £1.6 billion last month to £8.8bn.

This was the highest October borrowing since 2015 and was far more than the £6.2bn economists had expected.

The ONS said tax receipts in October increased 1.2% year on year, lower than the 4.3% rise seen for the year to date.

Government expenditure grew 7.7% to £65.4bn due to higher spending on interest rates and goods and services.

But despite the October surge, year-to-date borrowing was still sharply lower at £26.7 billion - down by £11.2bn year-on-year and the lowest for 13 years.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Hefty public borrowing in October has brought the run of good news on the public finances to an abrupt end, though it’s too soon to conclude that the Chancellor [Philip Hammond] is set to miss the forecasts laid out in last month’s Budget.”

He said borrowing for the full year ending March will total £28.2bn, above the Office for Budget Responsibility’s new forecast of £25.5bn if the year-to-date trend persists.

Even so, Mr Tombs said that borrowing would still equal just 1.3% of the country’s gross domestic product (GDP), the lowest since 2001/02 and that the “modest fiscal stimulus planned for next year still could go ahead, given that the Chancellor incorporated £15bn of ‘fiscal headroom’ into the Budget plans”.

Howard Archer, chief economic adviser at EY Item Club, said October’s weakened performance suggests the Chancellor may struggle to hit the sharply reduced budget deficit of £25.5bn projected by the OBR.

“Much will depend on how well the economy holds up over the coming months, particularly given current heightened uncertainties over whether there will be a Brexit deal.”