UK borrowed £16bn in June, undershooting forecasts, but first-quarter deficit overshoots by £2.7bn

June borrowing undershoots forecasts

Britain's government borrowed £16 billion ($21.51 billion) in June, £7.9 billion lower than the same month last year and below the median forecast of £18 billion in a Reuters poll of economists. The Office for National Statistics attributed the improvement to stronger tax receipts and weaker expenditure, including a fall in inflation-linked debt payments. Interest costs, however, remained the fourth highest on record for the month.

First-quarter deficit overshoots

Despite the June improvement, the budget deficit for the first three months of the fiscal year, April through June, reached £57.6 billion ($77.5 billion), according to Bloomberg. That figure is £2.7 billion above the official forecasts that underpin the government's budget. Day-to-day spending was £42 billion in the red over the same period, almost 11% lower than a year earlier but £1.3 billion above those forecasts. The fiscal rules require the current budget to be in balance with tax receipts by the end of the decade.

Public debt approaches £3 trillion

The ONS also reported that the UK is carrying almost £3 trillion in public debt. Separate labour market figures showed the unemployment rate remained unchanged between March and May, with the statistics body describing the labour market as "relatively steady."

Burnham's early fiscal moves

Andy Burnham replaced Keir Starmer as prime minister on Monday and immediately recommitted to the fiscal rules followed by his predecessor, while signalling there could be flexibility within them. He appointed John Healey as Chancellor of the Exchequer. Healey had resigned as defence minister from Starmer's government in protest at a defence spending increase he considered too small.

There could be flexibility within the fiscal rules.

On Tuesday, Burnham's government announced it would cut taxes on domestic electricity bills later this year to help ease the cost of living. The measure would be paid for by scrapping a digital ID scheme.

What analysts are watching

June was the last full month before Burnham took office. The mixed picture, a better-than-expected single month alongside a first-quarter overshoot, leaves the new chancellor facing immediate pressure to keep the public finances on track. The Reuters poll had pointed to a £18 billion deficit for June, making the £16 billion outcome a modest positive surprise, but the cumulative overshoot in the fiscal year to date narrows the room for manoeuvre as the government prepares its next budget.