Public sector borrowing falls more than expected in October

UK public sector net borrowing improved more than expected in October, as the economy´s resilience fed strong tax receipts, but economists cautioned that tough decisions lay ahead for the country.

The monthly budget shortfall was cut from £6.4bn in the year ago period to £4.8bn, according to the Office for National Statistics.

Economists had forecast an improvement to £6.0bn.

October´s reduction was mainly the result of a £2.1bn fall in the current budget deficit to £2.0bn, while net investment increased by £0.4bn to £2.8bn from one month to the next.

For the current financial year-to-date and in comparison to the same period of 2015, public sector net borrowing, excluding public sector banks, fell by £5.6bn to £48.6bn.

That marked a 10.3% drop in the year-to-date deficit from the £54.2bn observed between April and October of 2015, "but it was substantially less than the improvement required," Dr.Howard Archer, chief European+UK economist at IHS Markit said.

"Based on the first seven months, PSNBex is headed for £68.2bn in 2016/17 compared to the March budget target of £55.5bn.

"[...] A concern for the Chancellor is that the public finances are likely to be hampered over the rest of the fiscal year and beyond by higher gilt yields lifting interest payments and higher inflation lifting costs. And, of course, expected markedly slowing growth over the coming months will take a toll on tax receipts - although this is likely to show up more after the current fiscal year," Dr. Archer added.

As a percentage of gross domestic product, the public sector´s net debt was lowered by 0.5 percentage points to 83.8%, while the stock of debt grew by £50.9bn to £1.642trn..