LONDON, (Reuters) - Britain's budget deficit swelled in the first three months of the tax year due to higher debt interest payments and rising spending on services, placing
the public finances on a less solid footing ahead of Brexit.
Public sector net borrowing in June totaled 7.2 billion pounds, excluding public-sector banks, the Office for National Statistics said, up from 3.3 billion in June 2018 and above all economists' forecasts in a Reuters poll.
Looking at the three months to June, borrowing was 33% higher than the same period in 2018 at 17.9 billion pounds.
While data early in the financial year does not always offer a good guide to full-year performance, due to changes in the timings of payments and provisional spending data, Friday's figures showed public spending running ahead of forecast.
In March Britain's Office for Budget Responsibility forecast public borrowing would rise from a 16-year low of 1.1% of economic output in 2018/19 to 1.3% of GDP or 29.3 billion pounds in 2019/20.
However on Thursday it predicted borrowing could jump by 30 billion pounds a year in 2020/21 if Britain leaves the EU without a transition deal on Oct. 31, triggering a recession.
Both candidates to succeed Theresa May as prime minister in an ongoing Conservative Party leadership contest have said they will keep the option of a no-deal Brexit on the table.
The OBR also described Boris Johnson's and Jeremy Hunt's campaign pledges of tax cuts and increased spending as "expensive" and said commitment to fiscal discipline was slipping after years of public spending restraint.
Finance minister Philip Hammond expects to lose his job, and neither candidate has endorsed Hammond's budget goals of keeping the budget deficit below 2% of GDP and lowering public debt as a share of GDP.
Friday's figures showed that public sector net debt totaled 83.1% of GDP in June, excluding public-sector banks, or 74.8% once the effect of a temporary Bank of England lending scheme was stripped out too.
Britain's debt-to-GDP ratio was below 40% before the 2008/09 financial crisis.
(Reporting by David Milliken and William Schomberg; [email protected]; +44 20 7542 7947)
