UK government borrowing is running 15% below official forecasts, setting the stage for Chancellor Jeremy Hunt to announce fiscal giveaways in his Autumn Statement on Wednesday.
The budget deficit in the first seven months of the fiscal year was £98.3 billion ($123.15) - £21.9 billion above the same period last year but £16.9 billion less than the Office for Budget Responsibility forecast in March.
The shortfall in October alone was £14.9 billion, the Office for National Statistics said, more than the £12.8 billion median forecast in a Bloomberg survey of economists. A factor behind the overshoot was welfare benefits, which were £4.5 billion higher than a year earlier.
Treasury coffers are enjoying a surprise boom in tax receipts as high inflation boosts wages, company profits and the value-added tax base. Bloomberg Economics expects new OBR forecasts to show the deficit coming in around £20 billion lower than the £131.6 billion predicted in March.
However, for Hunt — under pressure to cut taxes to lift the Conservatives ahead of an election expected next year — what matters more is the amount of headroom he is judged to have in five years when his fiscal rules bite.
Treasury officials say the margin is more than double the record-low £6.5 billion estimated by the OBR in March. On Monday, Prime Minister Rishi Sunak signaled that he and Hunt and planning to use the extra leeway to announce tax cuts this week, saying the government can begin reducing the tax burden in a “serious, responsible way” after hitting a goal to halve inflation this year.
“At my Autumn Statement tomorrow, I will focus on how we boost business investment and get people back into work to deliver the growth our country needs,” Hunt said in a statement. “We met our pledge to halve inflation, but we must keep on supporting the Bank of England to drive inflation down to 2%. That means being responsible with the nation’s finances.”
