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UK government borrowing jumps as inflation rises
Finland inflation highest since Sep-2014

UK government borrowing jumps as inflation rises

LONDON: Britain had a larger-than-expected budget deficit last month as rising inflation pushed up debt payments.

Net borrowing was £6.9 billion (Dh32.9bn), up from £4.8 billion in June 2016 and above the £4.9 billion predicted by economists. It left the shortfall in the first three months of the fiscal year at £22.8 billion, up 9 per cent on the year.

The figures highlight the risks facing the public finances as rising prices and stagnant wage growth take their toll on the economy.

Debt payments jumped 33 per cent from a year earlier to £4.9 billion , the highest for any June since 2011, as inflation increased the cost of servicing index-linked government bonds.

Spending was also driven by a surge in payments to the European Union and a 12 per cent increase in government spending on goods and services. Total government spending rose 8.3 per cent, almost double the 4.6 per cent increase in revenue.

The figures may raise fresh questions about whether Chancellor of the Exchequer Philip Hammond can limit borrowing to £58 billion 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.

The deficit has fallen from 10 percent of GDP in 2010 to 2.4 percent last year, and Hammond is pledging to balance the books by 2025. But the Office for Budget Responsibility warned last week that a severe shock would quickly put the UK finances on an unsustainable path with net debt soaring above 100 per cent within five years, from its current 87 per cent.

While revenue so far this fiscal year is running ahead of OBR forecasts, so too is spending, which grew 5.6 per cent between April and June.

Central government cash borrowing, which determines bond issuance, was £17.8 billion last month and £12.4 billion in the fiscal first quarter.