Labour blasts 'failing' government after UK deficit jumps in June – as it happened

Graeme Wearden

from on 2017-07-21 14:28 (#2X1TP)

All the day's economic and financial news, including coverage of the latest UK public finances

3.27pm BST

And finally, here's our updated news story:

3.09pm BST

Tim Wallace of the Daily Telegraph points out that the government did rake in more tax receipts this week, but not enough to keep pace with higher borrowing costs.

The Government's tax haul is on the rise as the economy grows - so far this financial year current tax receipts have come in at 164.2bn, up 4.7pc on the 156.8bn raised last year.

However, total current spending has risen by 5.6pc to 176.7bn, so the Government has had to borrow more to plug that widening gap.

Hammond has come under pressure from within the ruling Conservative Party as well as from the opposition Labour Party to loosen his grip on public spending, chiefly by relaxing a cap on pay for public workers.

Spending on debt interest jumped an annual 33 percent in June to 4.9 billion pounds, the highest for any month of June since 2011, reflecting a sharp rise in inflation which has pushed up the cost of index-linked bonds for the government.

The figures may raise fresh questions about whether Chancellor of the Exchequer Philip Hammond can limit borrowing to 58bn this year, as forecast by his budget watchdog in March.

Hammond is also under pressure to boost wages for millions of public-sector workers and spend more on health and education after the Tories' catastrophic election performance highlighted the frustration of voters after seven years of austerity.

2.35pm BST

Newsflash: Bank of America has chosen Dublin as its European Union hub, as it prepares for life after Brexit.

We already have a fully licenced and operational Irish-domiciled bank which, combined with Ireland's strong commitment to business and economic growth, makes Dublin the natural location to consolidate our legal entities as we transition.

We will move roles not only to Dublin but to other EU locations, with the focus on how we can best support our clients in these markets.

1.52pm BST

This chart shows how the repayments on Britain's national debt has risen in line with inflation, as measured by the retail price index.

UK public finances suffer inflation hit, adding to Hammond's headache https://t.co/B0io2cZgrN pic.twitter.com/bcag8Oxbtj

1.22pm BST

Liberal Democrat leader Vince Cable blames last year's Brexit vote, and the resulting tumble in the pound, for the rising deficit.

"This rise in borrowing is a direct consequence of the dramatic fall in the pound since last year's Brexit vote.

"Instead of the 350m for the NHS that was promised, people's living standards are falling and borrowing is going up.

12.43pm BST

Britain's fiscal watchdog, the Office for Budget Responsibility, has issued a commentary on today's public finances.

It says Britain's borrowing was forced up by higher debt costs on bonds linked to inflation, delayed payments to the European Union, and changes to the way self-assessment taxes are collected.

Spending pushes deficit higher - read the latest commentary at https://t.co/k0nGloBMMW pic.twitter.com/6UpU6raBtG

11.45am BST

The big picture from today's public finances is that the national debt kept rising over the last year, and is heading towards 1.8 trillion.

The ONS says:

Public sector net debt (excluding public sector banks) was 1,753.5 billion at the end of June 2017, equivalent to 87.4% of gross domestic product (GDP), an increase of 128.5 billion (or 3.6 percentage points as a ratio of GDP) on June 2016.

11.21am BST

Here's my colleague Phillip Inman's take on today's public finances:

The UK borrowed more than expected in June, with the country's budget deficit rising to 6.9bn - almost 50% higher than the same month last year.

Higher inflation forced the government to spend more on financing its debt mountain, other factors included lower GDP growth in the first quarter, a fall in corporation tax receipts and a bigger than expected contribution to the EU budget in June . Analysts said the deficit could now exceed forecasts over the rest of the financial year.

11.13am BST

Here's some more details on the public finances, via the Press Association:

The ONS said Government spending rose by 8.3% to 59.9bn in June compared with last year, while tax receipts lifted by 4.6% to 54.3bn.

The Treasury saw VAT climb by 400m to 11.4bn over the period, as income tax takings also stepped up by 800m to $12.7 billion.

10.58am BST

Labour's shadow chancellor John McDonnell has laid into the government over today's public finances.

"These figures reveal the continued failure of Philip Hammond and the Conservatives.

"Seven years of Tory cuts have left our economy weaker, with falling wages, yet the deficit has not been eliminated two years after they claimed it would be, and the national debt continues to rise.

10.55am BST

The rise in borrowing in June means chancellor Philip Hammond has less wriggle room for tax cuts or spending rises in his next budget.

Howard Archer of EY Item Club says:

"June's shortfall highlights the fact that the public finances are still far from healthy.

At the same time rising public dissatisfaction with austerity and the public sector pay cap is exerting pressure on the government to recalibrate fiscal policy in November's Budget.

Bad news for Chancellor as #UK #public #finances see clear y/y deterioration in June; PSNBex comes in at 6.9bn vs 4.8bn in June 2016.

10.39am BST

The jump in Britain's borrowing last month shows that the public finances have deteriorated, according to John Hawksworth, PwC chief economist.

But he's hopeful that Britain could still hit its deficit targets, as last year's borrowings have been revised down.

"June saw a modest deterioration in public finances, with borrowing around 2 billion higher than a year earlier. This followed two months in which the deficit was almost identical to the year before. The general pattern is consistent with the OBR's March forecast that we might see some increase in the budget deficit this financial year, as the economy slows and some one-off favourable factors from last year unwind.

"Nonetheless, the deficit may still come in below the OBR's 58 billion forecast for 2017/18, given that the deficit in 2016/17 is now estimated to be 5.5 billion less than the OBR projected in March. So the increases in borrowing we are now seeing are from a lower base.

June's UK public finances show growth in tax receipts has remained below 2016's rate, consistent with GDP growth having remained weak in Q2: pic.twitter.com/jrQLQm6Tty

10.36am BST

Guardian Business has launched a daily email.

Besides the key news headlines that you'd expect, there's an at-a-glance agenda of the day's main events, insightful opinion pieces and a quality feature to sink your teeth into each day.

10.24am BST

Today's public finances also show that corporation tax receipts fell by 200m in June (year-on-year), helping to push the deficit up.

VAT, income tax and stamp duty receipts rose, though:

10.19am BST

The UK government has responded to the public finances, by admitting that Britain's national debt is too high.

A Treasury spokesman says:

'Today's release shows that our national debt, at 65,000 for every household, is still too high and leaves us vulnerable to any future shocks.

That is why we have a credible fiscal plan to get debt falling and deliver the sound public finances needed for a stronger economy and higher living standards."

10.07am BST

Digging into today's disappointing public finances, you can see that the spike in inflation has pushed Britain's borrowing up.

That's because the UK has issued index-linked bonds, whose interest payments are linked to the retail prices index.

In June 2017, the UK paid 1,249 million to the EU budget through GNI and VAT based contributions, which are made net of the UK rebate. This payment consisted of our standard monthly VAT and GNI based contribution of 991 million, along with a 258 million payment adjustment covering earlier years, which will be subject to a further UK rebate.

The higher UK fiscal deficit in June was due to higher debt interest ( RPI based) and a higher EU contribution #BoE #GDP

9.47am BST

The public finances report also shows that Britain is on track to borrow more this financial year than in 2016-17.

As you can see, borrowing is already up compared with a year earlier:

9.39am BST

Breaking! Britain borrowed more than expected to balance the books in June, in a blow to the government's fiscal plans.

The UK's public sector net borrowing requirement jumped to 6.9bn in June 2017, which is 2bn more than in June 2016.

9.29am BST

Analysts at French bank BNP Paribas fear that the strong euro will hit exports, as well as keeping a lid on inflation:

ECB should be worried about the euro. Its rise since Sintra set to knock an estimated 0.2% off inflation over next 12 months - BNP Paribas

Euro rise a worry for ECB as import volumes = 44% of euro zone GDP, highest in developed world, and inflation already well below target-BNPP

9.26am BST

Newsflash: Eurozone economists have cut their forecasts for inflation in the currency bloc, and hiked their growth forecasts.

That's according to the latest ECB survey of professional forecasters, which highlight why Mario Draghi was so cautious yesterday.

ECB survey: 2017 GDP growth seen at 1.9% vs 1.7% seen three months ago, 2018-2019 GDP also revised up

9.15am BST

Every British sports fan knows that you underestimate an Australian at your peril.

And overnight, a top Australian central banker launched a Steve Waugh-style counterattack against speculation that an interest rate rise is imminent.

"Just as the policy rate in Australia did not need to decline to the very low levels seen in other parts of the world, the fact that other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase."

9.07am BST

Adam Cole of RBC Capital Markets argues that the euro's rally is misplaced.

There is really nothing in Draghi's remarks yesterday that calls for this kind of bullishness on the euro and markets may end up getting disappointed before long.

8.55am BST

European stock markets have dipped into the red in early trading, on fears that the stronger euro will hurt exporters.

In Germany, shares in BMW, Volkswagen and Continental are all down around 0.75%.

"It added to jitters about whether we'll get the earnings growth that everyone is hoping for."

The strong euro is spooking traders https://t.co/VfUs46f91A pic.twitter.com/OzgQHpsQjz

8.34am BST

Curiously, eurozone government bonds have actually strengthened this morning, pushing down the interest rates (or yield) on the debt.

You might expect them to have moved the other way, if the European Central Bank was really poised to trim its bond-purchase stimulus programme [which has been pushing prices up].

Still not quite sure I understand this ECB reaction. Euro up again today, bond yields down. Anyone?

8.16am BST

The chatter in the City today is that the euro could hit $1.20 against the US dollar soon, for the first time since January 2015.

Bob Parker, investment committee member at Quilvest Investment Management, told CNBC that he expects the European Central Bank to trim its bond-purchase programme this autumn, and end it next year.

Investors believe that the ECB QE programme will go to a40bn per month during the fourth quarter of 2017 [from a60bn today] and that the negative deposit rates will go.

This has been my view for the last three months and I assume that QE will end in 2Q18 [the second quarter of 2018]."

#Euro could hit $1.20 by year end as #ECB's Draghi spurs rally: analysts say https://t.co/apZIUXm079 /via @CNBCi
Now at $1.1650 $EURUSD

8.03am BST

There's no holding the euro back this morning!

The single currency has romped to a fresh two-year high in early trading, as traders anticipate that the European Central Bank will cut its stimulus programme in the next few months.

"It's an armour-plated rally and it won't stop."

"Everything speaks in favour of further euro appreciation -- increasing portfolio inflows, changing monetary policy, improved political risks."

7.50am BST

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