UK posts larger-than-forecast budget deficit in May

London: UK government borrowing was greater than forecast in May as capital investment and departmental spending rose strongly.

The £5.1 billion (Dh23.77 billion, $6.5 billion) shortfall was above the £4.1 billion predicted by economists. It left the deficit in the first two months of the fiscal year at £11.9 billion, 18 per cent higher than a year earlier, the Office for National Statistics said on Friday.

Government revenue in April and May combined rose 3 per cent on the year, in line with official projections for the full fiscal year. But current spending jumped a stronger-than-expected 3.6 per cent, while net investment climbed by almost 5 per cent after a strong increase last month.

The budget deficit has fallen from a towering 9.9 per cent of GDP in the aftermath of the financial crisis. It stood at a 17-year low of 1.1 per cent of GDP in 2018-19, but a modest increase is forecast in 2019-20 — the result of tax giveaways and extra health spending announced last year.

The figures come a day after Chancellor Philip Hammond warned Boris Johnson and Jeremy Hunt, the remaining two candidates in the contest to succeed Prime Minister Theresa May, not to blow a benign fiscal inheritance by pursuing an economically damaging no-deal departure from the European Union.

In his Mansion House speech, he said the damage inflicted by a chaotic Brexit would wipe out the £15 billion of headroom built into his fiscal plans, money that could otherwise be used for tax cuts or more spending on public services.

The central government cash requirement, which helps determine bond issuance, stood at £16.6 billion in May. Underlying net debt climbed to £1.62 trillion, or 74.4 per cent of GDP.