UK budget deficit balloons to highest June level in four years

Britain’s budget deficit widened to £7.15bn last month, the largest gap for June since 2015 and more than double last year’s level, official data has shown.

The Office for National Statistics (ONS) focuses on year-to-year rather than month-to-month comparisons in the public finances data because it does not adjust the numbers for seasonal variations.

The unexpectedly large gap between public revenue and spending underscores the pressure on the UK government as it is trying to prepare for a possible no-deal Brexit, as well as end years of austerity.

Mark Carney, governor of the Bank of England, said last week that the authorities had been making “extensive and expensive” preparations for the possibility that Britain will leave the EU without an agreement in October, such as boosting capacity at ports and customs.

A no-deal Brexit would deliver a further – and much bigger – blow to public finances, according to forecasts by the government’s spending watchdog. The Office for Budget Responsibility (OBR) said on Thursday that the annual budget deficit would widen by around £30bn from 2020-21 onwards.

The ONS data showed that the government’s slide further into the red was driven by a jump in spending and slower growth in receipts, including from taxes, compared to a year ago.

The EY Item Club said: “Tax revenues in June looked lacklustre, which ties in with evidence that the economy is currently struggling.”

The release comes as the Treasury is expected to announce the biggest public sector pay rise for six years on Monday, estimated to cost £2bn. Two million public sector workers including police officers, soldiers and teachers will be given above-inflation pay rises, according to the source.

Demands on the public purse will also rise if the extra spending promised by both candidates to be Britain’s next prime minister is implemented. The pledges by Boris Johnson and Jeremy Hunt would put “enormous pressure” on unprotected areas of spending or would require more borrowing, the OBR warned.

Ruth Gregory, senior UK economist at Capital economics, said the ONS data provided “a timely reminder that the new PM won’t get a free ‘fiscal lunch’”.

“There will be further bad news for the new PM in September as a change in the accounting treatment of student loans in September will raise the deficit by more than £10bn a year,” she noted.

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