Chancellor Philip Hammond misses budget target but deficit at 17-year low

24 April 2019, 10:55 | Updated: 24 April 2019, 12:40

Higher government spending in the run-up to Brexit caused the Chancellor to miss his full-year borrowing target, despite the budget deficit sinking to its lowest level for 17 years.

According to initial figures from the Office for National Statistics (ONS), public sector net borrowing fell 41% - by £17.2bn - to £24.7bn in the 2018/19 financial year.

While that was the lowest sum borrowed since 2001/2, the total was £1.9bn higher than the £22.8bn forecast by
the Office for Budget Responsibility (OBR) last month at the time of Philip Hammond's spring statement.

The ONS said it left the deficit at 1.2% of gross domestic product, down from 9.9% at the height of the financial crisis a decade ago.

It said that in March alone, borrowing jumped to £1.7bn when economists had expected a figure of around £400m.

While tax receipts continued to grow, by 5% on a year-on-year basis, total government spending jumped 5.7% as the clock ticked down to the original Brexit deadline of 29 March.

The ONS said: "There were notable increases in expenditure on goods and services, net social benefits, gross capital formation and capital transfers to the private sector of £1.9bn, £0.6bn, £0.6bn and £0.8bn respectively".

It all meant, the data concluded, that Britain's total net debt stood at £1.8tn - up £22bn on 2017/18.

Brexit remains the biggest uncertainty regarding the UK economy - with Mr Hammond promising in his spring statement a "dividend" if the UK was to leave the EU in an orderly fashion.

He admitted then that "Brexit fog" was damaging growth and EY Item Club chief economic adviser Howard Archer said the outlook has been further clouded by the extension of Brexit until 31 October.

He said: "The Chancellor has repeatedly warned that a no-deal Brexit would inflict a significant short to medium-term hit to the economy - and he clearly wants to keep his fiscal options open should this occur.

"We suspect that if there was ultimately a no-deal Brexit, there would be some loosening of fiscal policy to support the economy."