UK August public finance data leaves Hammond little room for manoeuvre at Nov budget update

UK Public Sector Net Borrowing (PSNB) data released earlier on Wednesday showed a slightly bigger-than-expected deficit in August. Excluding state-owned banks, UK ran a budget shortfall of £10.55 billion in August, lower than a deficit of £11.47 billion in the same month last year. The deficit was higher than a £10 billion expected by economists.

For the first five months of the 2016/17 tax year, public sector net borrowing was nearly 13 percent lower than between April and August last year at £33.8 billion. However, Britain’s official budget forecasters had estimated the deficit would narrow to £55.5 billion in the full 2016/17 financial year - a target which looks unlikely as the economy is expected to slow following the Brexit vote.

Public spending is going to be a key topic in new Chancellor Hammond's half budget in November, and whether he's going to boost spending to offset any Brexit fallout. Before the referendum, Britain’s finance ministry said Brexit could increase public sector net borrowing by £24 billion or more in 2017/18.

August public finance data show there are no observable major effects on Britain's public finances following the Brexit vote. Hammond will hence have little room for manoeuvre as he prepares his first post-Brexit vote budget plans.