Britain recorded a smaller-than-expected budget deficit in September, a minor boost for finance minister Jeremy Hunt as he grapples with tough economic constraints ahead of a budget update next month.

Public sector net borrowing, excluding state-owned banks, was £14.347 billion (S$23.8 billion) in September, the Office for National Statistics (ONS) said on Friday (Oct 20).

A Reuters poll of economists had pointed to public sector net borrowing, excluding state-owned banks, of £18.3 billion.

Government borrowing between April and September, the first half of the 2023/24 financial year, totalled £81.7 billion, £15.3 billion more than in the first half of the previous financial year.

But with half of the fiscal year gone, borrowing is still running about £20 billion less than the Office for Budget Responsibility had forecast at this point in March.

The Resolution Foundation think tank said high inflation had pushed up the nominal value of the government’s tax receipts, which on the face of it was a short-term fiscal boost for Hunt ahead of his budget update on Nov 22.

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“However, this short-term gain is likely to be more than offset by longer-term pain as the impact of higher interest rates continues to push up borrowing costs over the coming years,” said Cara Pacitti, senior economist at the Resolution Foundation.

“Together, this is likely to reduce the Chancellor’s already limited room for manoeuvre as he uses his Autumn Statement to prepare the economic pitch for next year’s General Election.”

Hunt said last week higher interest rates were likely to cost Britain an extra £20 billion to £30 billion a year, and has all but ruled out near-term tax cuts, saying the government needed to prioritise bringing down inflation.

The health of the economy remains a source of anxiety for policymakers. Separate ONS data on Friday showed retail sales volumes dropped sharply in September, while the GfK measure of consumer confidence also dived.

Many members of Hunt’s Conservative Party want him to announce plans to lower taxes before national elections which are likely to be held some time in 2024. REUTERS