Public borrowing below forecasts despite July rise

Government borrowing was lower than expected last month, adding to speculation about possible tax cuts later this year.

Borrowing – the difference between spending and tax income – was £4.3bn in July, official figures show, below analysts’ forecasts of about £5bn.

The figure was helped by rising self assessment tax revenues, but debt interest payments hit a July record.

Analysts warned the chancellor still had little “wiggle room” for tax cuts.

There has been speculation that the government could announce cuts in the Autumn Statement, with a general election expected in 2024.

Borrowing for the financial year to date has now reached £56.6bn, according to the Office for National Statistics (ONS).

While that is higher than in the same four-month period last year, it is still £11.3bn lower than the amount predicted in March by the government’s independent forecaster, the Office for Budget Responsibility (OBR).

Despite the better-than-expected figures, Ruth Gregory, deputy chief UK economist at Capital Economics, said that she thought the Chancellor Jeremy Hunt, would “struggle to unveil a large package of permanent tax cuts in the Autumn Statement”.

She added this was because the economy was expected to weaken later this year, which would hit tax revenues.

In addition, expectations of how high interest rates will go have increased since the OBR made its forecasts in March, and that will increase forecasts for the amount spent on debt interest payments.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said she doubted that the chancellor would “have enough wiggle room to meaningfully cut taxes or increase expenditure in the run up to the next general election”.

Commenting on the latest borrowing figures, Mr Hunt said: “As inflation slows, it’s vital that we don’t alter our course and continue to act responsibly with the public finances.

“Only by sticking to our plan will we halve inflation, grow the economy and reduce debt.”

July’s borrowing figure was £3.4bn more than a year ago and the fifth-highest figure for July since monthly records began in 1993.

The government paid debt interest of £7.7bn, which the Office for National Statistics (ONS) said was the highest total for July on record.

Some of the interest that the government pays on its debt is linked to the Retail Prices Index measure of inflation, which has been in double digits for most of the year although the rate has fallen in recent months.

Total net debt had reached £2.58 trillion by the end of July, the ONS said, which was about 98.5% of the UK’s gross domestic product (GDP) – the value of all the goods and services produced in the UK in a year.