Britain’s public finances showed a smaller-than-expected surplus in July, a month typically lucrative for the government as businesses settle their tax bills.
In the month following the Brexit vote, the government achieved a surplus of £1bn as it earned more in tax income than it spent. But that was lower than a £1.2bn surplus in the same month last year and below economists forecasts for £1.6bn in a Reuters poll.
Economists said the latest figures from the Office for National Statistics were disappointing, and warned the Brexit vote was likely to deal a bigger blow to public finances in the coming months and years.
“Slightly disappointing news for the chancellor, Philip Hammond, as the public finances could only eke out a small surplus in July,” said Howard Archer, chief UK economist at IHS Global Insight.
“The public finances look poised to take a serious hit from probable significantly weakened economic activity after the Brexit vote taking a toll on tax receipts in particular. It also seems probable that unemployment will rise while any slowdown in the housing market will hit stamp duty receipts.”
The July surplus was driven by a rise in tax receipts, which were up 3.4% compared with a year earlier at £61.8bn. Corporation tax receipts rose 8.4% to £7.5bn, while income tax payments rose by 1.9% to £18.9bn.
Central government spending rose by 1.4%, at £58.4bn.
In the current fiscal year starting in April, the government has borrowed a total of £23.7bn, £3bn lower than at the same point last year.
In the year ending March 2016, when George Osborne was chancellor, the deficit was £75.3bn, £16.5bn lower than the year before.
David Gauke, the chief secretary to the Treasury, said: “With the public finances in surplus in July, our economy starts from a position of strength to face any economic turbulence following the vote to leave the EU.
“As we keep working to cut the deficit, we are well-placed to handle any challenges and seize the opportunities as our economy adjusts.”
The ONS cautioned that the picture was not entirely clear because it was still collecting data for July.
“Estimates for the latest period always contain a substantial forecast element and so any post-referendum impact may not become clear for some time.”
The Office for Budget Responsibility – the Treasury’s independent forecaster – is likely to revise its forecasts for government borrowing at the autumn statement later this year, taking into account the impact of the Brexit vote.
At the time of the March budget, the OBR was forecasting a full-year deficit of £55.5bn.
Suren Thiru, head of economics at the British Chambers of Commerce, a business lobby group, said fixing the public finances by further reducing the deficit would be “an increasingly uphill task” if economic growth slows in the coming months.
Earlier on Friday, the chief economist of the ONS, Joe Grice, said signs of undented consumer confidence, underlined by Thursday’s retail sales data, did not mean the UK would avoid a post-vote recession. “Does that mean there won’t be a recession? No. The story is still to unfold,” he said.
This article was written by Angela Monaghan and Katie Allen, for theguardian.com on Friday 19th August 2016 09.36 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010