Britain posted a larger-than-expected budget deficit last month as government spending rose, a reminder that the country’s next finance minister may have limited options to cushion any Brexit blow to the economy.
The budget deficit widened to £5.115bn (€5.7bn), the UK’s Office for National Statistics (ONS) said, a 23% rise from May 2018 and above all forecasts. For the first two months of the 2019/20 financial year, the deficit was 18% larger than a year earlier at just under £12bn.
Britain’s official budget forecasters have predicted an increase in government borrowing this year after a steady decline in the deficit from around 10% of economic output in 2010 to just above 1% last year.
“The higher-than-expected borrowing figures over the first two months of the financial year highlight the strain that a slowing economy could place on the UK’s public finances in the months ahead,” said Pablo Shah of the Centre for Economics and Business research consultancy.
Other economists said the data may have been affected by one-off factors, such as a rise in government investment. “May’s public finance data are not a sign that the economy is losing momentum,” economist Samuel Tombs from Pantheon Macroeconomics said.
The ONS raised its estimate for borrowing in the 2018/19 financial year to £24bn, up from a previous £23.5bn forecast, pushing further above finance minister Philip Hammond’s missed target of £22.8bn.
UK government spending in May rose 2.6% compared with a year ago, driven mostly by the purchase of goods and services.
Growth in tax receipts was mostly solid, but corporation tax revenue edged down last month by 0.8% — the first annual decline for any May since 2013.
Mr Hammond this week ramped up his warnings to whoever becomes Britain’s next prime minister that a no-deal Brexit would wipe out the money he has set aside for potential rises in public spending or tax cuts, which would represent an end to the UK’s austerity policies of much of the last decade. Both candidates to replace Theresa May as prime minister — former foreign secretary Boris Johnson and his successor, Jeremy Hunt — have said they are prepared to take Britain out of the EU without a transition agreement if necessary.