Better Than Expected UK Public Finance Adds Hopes Of Tax Cuts

(RTTNews) - The UK budget deficit narrowed more than estimated in December on higher receipts and falling spending, giving room for the Chancellor to provide giveaways in the March budget ahead of elections.

Public sector net borrowing, excluding public sector banks, declined sharply by GBP 8.4 billion from the last year to GBP 7.8 billion in December, the Office for National Statistics reported Tuesday.

This was the lowest December borrowing since 2019 and also much better than the economists' forecast of GBP 14 billion shortfall.

Central government receipts rose by GBP 4.8 billion to GBP 81.5 billion in December. However, this was GBP 1.8 billion less than the GBP 83.3 billion that the Office for Budget Responsibility had forecast.

At the same time, expenditure decreased GBP 5.4 billion to GBP 86.1 billion. The figure was GBP 8.4 billion less than the official forecast.

The better-than-expected public finances data brought some cheer for the Chancellor after the recent run of poor outturns and will give him a bit more wiggle room for a big pre-election splash in the Spring Budget on March 6, Capital Economics economist Ruth Gregory said.

As interest rate expectations and long-dated gilt yields have fallen since November, the economist expects the OBR to revise down its borrowing forecast significantly from 2025/26.

Gregory expects Chancellor Jeremy Hunt to unveil a freeze in the fuel duty in April 2024 and perhaps also to announce more crowd-pleasing measures, such as a 1 percent cut to the income tax, while still maintaining fiscally prudent appearances.

In the financial year-to December, borrowing totaled GBP 119.1 billion. The deficit was GBP 5.0 billion lower than the GBP 124.1 billion the OBR had estimated.

Nonetheless, the borrowing was the fourth-highest year-to-December estimate since records began in 1993.

At the end of December, the public sector net debt excluding public sector banks was GBP 2,685.6 billion or 97.7 percent of the annual gross domestic product, data showed.