Government borrowing higher than expected in December

Borrowing fell £400m on the same month a year earlier to £6.9bn, official figures show, but City analysts had predicted £6.7bn

Chancellor Philip Hammond (PA)

The UK public finances improved in December as Government borrowing fell £400m on the same month a year earlier to £6.9bn, official figures show.

In the first set of figures to include six months of post-Brexit vote data, public sector net borrowing from April to December 2016 was down £10.68bn to £63.8bn, the Office for National Statistics said.

The number is slightly below the Office for Budget Responsibility’s projection of £68bn in November’s Autumn Statement, though it is higher than the £56bn deficit predicted by the OBR earlier in the year before a marked deterioration in the public finances in October.

December’s borrowing was also slightly higher than the £6.7bn forecast by City economists.

The additional borrowing takes the UK’s total debt to £1,698.1bn, or 82 per cent of gross domestic product.

Howard Archer, chief UK and European economist at IHS Global Insight, said the figures were “reassuring news” for Chancellor Philip Hammond. “Largely healthy tax receipts in December pointed to ongoing resilient economic activity with robust increases in corporation tax and income tax receipts,” he said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, cautioned that, despite the marginally improved figures, the Treasury will not have much room for manoeuvre in cutting the deficit.

“We doubt that the Chancellor will be able to use the ‘fiscal headroom’ he expects to have to increase borrowing and still meet his self-imposed rules later in the parliament.”

The Chancellor has already ditched the target of a budget surplus by 2019-20, which was the central goal of his predecessor George Osborne, instead saying the public finances should balance as early as possible in the next Parliament.

He is also targeting a structural budget deficit below 2 per cent of GDP in 2020-21 and net debt falling relative to GDP in that year.