UK public finances worsen in September, adding to Hammond’s budget headache

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Britain's Chancellor of the Exchequer Philip Hammond speaks at the Conservative Party conference in Birmingham, Britain October 3, 2016. REUTERS/Toby Melville/File Photo

Britain’s public finances showed a much bigger-than-expected deficit in September, a setback for Chancellor Philip Hammond as he prepares to deliver the country’s first budget plans since the Brexit vote.

Britain ran a budget shortfall – excluding state-owned banks – of 10.6 billion pounds last month, 14.5 percent higher than the deficit in the same month last year, the Office for National Statistics said on Friday.

The deficit was above all forecasts in a Reuters poll of economists, which produced a median forecast of an 8.5 billion-pound shortfall, and could limit Hammond’s ability to cushion the blow of the vote in June to leave the European Union through higher spending or tax cuts.

Britain’s budget deficit is among the highest for any developed nation.

The weak September figures took the deficit in the first six months of the financial year to 45.5 billion pounds, down nearly 5 percent from the same period in the previous year but already close to the 55.5 billion pounds forecast for the 2016/17 tax year as a whole by Britain’s budget watchdog in March.

The ONS said on Friday that receipts from corporation tax and property transactions both fell in September compared with the same month of 2015 and growth in value-added tax receipts was slower than earlier in the year.

It was the first fall in corporation tax revenues for the month of September since 2009, the ONS said, adding it was unable to provide a reason for the fall.

The growth in VAT receipts was the slowest for the month of September since 2012.

Hammond says he will bring down the budget deficit more slowly than his predecessor George Osborne had planned, to help the economy cope with the hit from the Brexit vote.

But the slow improvement of the public finances in the year to date, combined with an expected slowdown of the economy next year which will hurt tax revenues, represents a constraint on Hammond as he prepares his Nov. 23 Autumn Statement.

He has said any extra spending on infrastructure projects is likely to be modest, disappointing some economists who say he could be bolder with government borrowing costs so low.

Britain’s budget deficit stood at 4.0 percent of economic output in the last financial year, down from over 10 percent in 2010.

(Reporting by William Schomberg and David Milliken)

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