2017.11.2107:29:00UTC+00UK Budget Gap Widens On Debt Servicing

The UK budget deficit increased in October due to higher debt costs linked to rising prices, the Office for National Statistics reported Tuesday.

Public sector net borrowing, excluding public sector banks, increased by GBP 0.5 billion from the previous year to GBP 8 billion in October. The deficit was forecast to narrow to GBP 7.1 billion.

Figures were published ahead of the annual budget announcement by Chancellor of the Exchequer Philip Hammond on Wednesday.

The government paid GBP 6 billion in debt interest in October as higher inflation lifted the cost of servicing. On the tax side, income tax income rose 6.9 percent and VAT receipts gained 2.3 percent, while corporation tax declined from the previous year.

Nonetheless, in the current financial year-to-date period, PSNB dropped by GBP 4.1 billion to GBP 38.5 billion. This was the lowest year-to-date net borrowing since 2007.

Hammond remains on track to meet the deficit target of GBP 58.3 billion for the financial year ending March 2018.

At the end of October 2017, public sector net debt was GBP 1,790.4 billion, equivalent to 87.2 percent of gross domestic product.

The expected downward revisions to the Office for Budget Responsibility's economic forecasts will probably mean that the Chancellor has no room for significant giveaways at tomorrow's Autumn Budget, Paul Hollingsworth, an economist at Capital Economics, said.

The economist said Wednesday's budget is likely to be generally cautious, incorporating a broadly neutral package of tax and spending changes.