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LONDON (Reuters) – Higher government spending ate into Britain’s seasonal budget surplus in July, underlining the budget constraints facing Prime Minister Boris Johnson, who has promised to boost outlays as he prepares the country for Brexit.
The surplus, excluding state-owned banks, stood at 1.319 billion pounds, below all forecasts in a Reuters poll of economists and down from 3.562 billion pounds in July 2018, official data showed on Wednesday.
July is usually a strong month for the public finances as income tax payments from individuals bolster revenues.
While most tax receipts edged up compared with a year ago, government spending was 2.6 billion pounds higher, a 4.2% annual increase driven by purchases of goods and services and staff costs.
In the first four months of the financial year starting in April, Britain borrowed 16.0 billion pounds, up 60% compared with a year ago.
While the increase represents a change in direction after a decade of tight spending restraints to bring down the deficit, the shortfall as a share of the economy remains small at around 1% of gross domestic product.
In the longer-term, the outlook for the public finances is clouded by Brexit and uncertainty around government spending.
“With the new prime minister’s apparent shift in focus away from balancing the government’s budgets, we are likely to see rising levels of borrowing in the coming months,” Josie Dent, senior economist at consultancy Cebr, said.
“Furthermore, with a recession possibly on the way, government intervention may be needed to stimulate the economy.”
Britain’s economy shrank 0.2% in the second quarter, a hangover from the stockpiling boom in early 2019 in advance of the original Brexit deadline in March.