A record haul of VAT income for May has helped the budget deficit narrow to its lowest level for the month in 10 years.
Figures from the Office for National Statistics (ONS) showed Government net borrowing of £6.7bn – down £300m or almost 5% on the same month last year and below economists’ forecasts.
They had expected a higher figure as rising inflation takes its toll on consumer demand – damaging economic growth.
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But the ONS figures also showed a rosier-than-anticipated picture for net borrowing across the financial year to date.
The deficit narrowed last month, it said, as tax receipts rose by £2.6bn to £52.7bn.
The VAT sales tax raked-in £11.2bn – a rise of £500m on the same month last year.
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The income tax and corporation tax take were also up.
However, Government spending rose by £2.2bn to £55.8bn last month.
Economists predict its efforts to bring the deficit down will be pressured by an expected weakening of the economy as the effects of the Brexit vote start to bite.
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The loss of its parliamentary majority is also forcing ministers to consider loosening the purse strings.
Howard Archer, chief economic adviser to the EY ITEM Club, said: “May’s strong VAT receipts look to be the lagged impact of April’s spike in retail sales as a result of the later Easter and warm weather.”
But he cautioned: “While the performance of the public finances in April-May suggest that fiscal year 2017/18 could see a similar shortfall to the £46.2bn seen in 2016/17, a weakening economy is expected to take an increasing toll on the public finances over the coming months.
“The Office for Budget Responsibility forecast a shortfall of £58.3bn.”
Source: SKY News Feed