A sharp slowdown in VAT receipts growth contributed to considerably weaker than expected public borrowing figures for April and renewed concerns about the resilience of the British consumer in the face of higher inflation.
The Office for National Statistics (ONS) reported on Tuesday that VAT receipts rose at an annual rate of just 0.2 per cent in the month, the weakest year-on-year expansion rate since last August.
At the time of the March Budget, the Office for Budget Responsibility (OBR) had projected growth in VAT revenues of 3.9 per cent for the full 2017-18 financial year.
Total government borrowing for April came in at £10.3bn, up 13.1 per cent on the same month a year earlier and ahead of the £8.9bn that City analysts had pencilled in.
Consumers have powered the UK economy since last June's Brexit vote, but the latest VAT weakness adds to the evidence that rising inflation is curbing the public's spending appetite.
Retail sales slumped at their fastest quarterly rate in seven years in the first quarter of 2017, contributing to a sharp slowdown in GDP growth from 0.7 per cent to 0.3 per cent.
There was a reasonable bounce back in April according to the latest ONS estimate, although good weather seems to have played a part.
Inflation hit 2.7 per cent in April, the highest since 2013.
Total tax receipts in April were up 3.9 per cent year on year, with the VAT slump partly offset by strong corporation tax receipt growth.
Government current spending rose 5.9 per cent.
The overall deficit for 2016-17 was revised down by the ONS to £48.7bn, slightly lower than the £51.7 forecast by the OBR in in March.
But the OBR expects the deficit to increase again to £59.3bn this financial year, or 2.9 per cent of GDP.
That forecast is dependent on household consumption growth of 1.8 per cent in 2017, down from 3 per cent in 2016.
"Weak VAT receipts growth [are] another sign that consumer spending growth has slowed recently," said Scott Bowman, of Capital Economics.
"April’s public borrowing figures suggest that the slowdown in GDP growth in the first quarter won’t be just a blip," said Samuel Tombs of Pantheon.
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