U.K. Set to Beat Borrowing Forecast as Johnson Prepares Stimulus

(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak received a pre-budget boost on Friday as new figures left Britain on course to undershoot official borrowing forecasts this year.

The last snapshot of the public finances before the March 11 budget show the budget deficit is rising more slowly than the Office for Budget Responsibility predicted. It means that borrowing in the fiscal year through March is likely to come in below the 47.6 billion pounds ($61 billion) estimated.

The improvement came despite a disappointing January, when last-minute income tax payments typically generate a rare budget surplus. Last month, the surplus was a smaller-than-expected 9.8 billion pounds, 2.1 billion pounds less than a year earlier, according to the Office for National Statistics.

The broad picture leaves Sunak some leeway as he prepares to announce the biggest fiscal stimulus since the financial crisis in his budget.

Sunak, who replaced Sajid Javid this month in a grab of Treasury powers by Prime Minister Boris Johnson, is in a tight fiscal spot.

Fiscal rules inherited from Javid allow him to spend an extra 20 billion pounds on infrastructure but require the day-to-day budget to be in balance in three years, a goal that appears likely to be met by the narrowest of margins given the weaker growth outlook. The current budget in the fiscal year so far was in deficit by 7.2 billion pounds.

There is speculation that Sunak may tweak the rules to permit an even more expansionary budget.

Austerity Over

Britain is loosening the purse strings after Johnson won the December election by persuading voters in struggling districts in northern and central England to back his Tory party for the first time.

Almost a decade of austerity has brought down the deficit to under 2% of GDP from 10% in the aftermath of the financial crisis, but taken a brutal toll on public services, pay and welfare.

Spending by government departments jumped 6.5% in January from a year earlier. Overall spending, including capital investment, rose 5.5%, outpacing a 3.4% increase in revenue.

Income tax climbed almost 6% as people rushed to beat the Jan. 31 deadline to settle self-assessed liabilities. However, other categories posted declines, including stamp duty and corporation tax.

The borrowing figures cap a week of good news for Johnson, with employment strong in the fourth quarter, retail sales surging in January and investment intentions at their highest in two years.

©2020 Bloomberg L.P.

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