U.K. Posts Larger-Than-Forecast Budget Deficit in May

(Bloomberg) -- U.K. government borrowing was greater than forecast in May as capital investment and departmental spending rose strongly.

The 5.1 billion-pound ($6.5 billion) shortfall was above the 4.1 billion pounds predicted by economists. It left the deficit in the first two months of the fiscal year at 11.9 billion pounds, 18% higher than a year earlier, the Office for National Statistics said Friday.

Government revenue in April and May combined rose 3% on the year, in line with official projections for the full fiscal year. But current spending jumped a stronger-than-expected 3.6%, while net investment climbed by almost 5% after a strong increase last month.

The budget deficit has fallen from a towering 9.9 percent of GDP in the aftermath of the financial crisis. It stood at a 17-year low of 1.1% of GDP in 2018-19, but a modest increase is forecast in 2019-20 -- the result of tax giveaways and extra health spending announced last year.

The figures come a day after Chancellor Philip Hammond warned Boris Johnson and Jeremy Hunt, the remaining two candidates in the contest to succeed Prime Minister Theresa May, not to blow a benign fiscal inheritance by pursuing an economically damaging no-deal departure from the European Union.

In his Mansion House speech, he said the damage inflicted by a chaotic Brexit would wipe out the 15 billion pounds of headroom built into his fiscal plans, money that could otherwise be used for tax cuts or more spending on public services.

The central government cash requirement, which helps determine bond issuance, stood at 16.6 billion pounds in May. Underlying net debt climbed to 1.62 trillion pounds, or 74.4% of GDP.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson

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