UK borrowing shows limited room for pre-election tax cuts

A worker walks into the Treasury building in London

LONDON (Reuters) -Britain increased its public borrowing in the first five months of the tax year, according to data published on Thursday, and finance minister Jeremy Hunt looks likely to have little room to offer major tax cuts to voters later this year.

Public sector net borrowing, excluding state-owned banks, totalled 69.6 billion pounds ($85.7 billion) in the April-August period, 19.3 billion pounds more than a year earlier.

The figure for the financial year so far was 11.4 billion pounds less than expected by official fiscal forecasters whose projections underpin the government's budget plans.

But analysts said a slowdown in the economy would hurt tax revenues and the Office for Budget Responsibility was likely to revise up its estimates for debt interest spending when Hunt makes his next budget statement in November.

"Households usually enjoy tax cuts in the run-ins to general elections, but we expect Mr. Hunt to make only token gestures in the Autumn Statement," Samuel Tombs, an economist with Pantheon Macroeconomics, said.

Thursday's data showed Britain recorded a slightly larger-than-expected budget deficit in August alone.

The public sector spent more than it received in taxes and other income during the month, requiring it to borrow 11.6 billion pounds, the Office for National Statistics said.

A Reuters poll of economists had pointed to public sector net borrowing, excluding state-owned banks, of 11.3 billion pounds.

"These numbers show why after helping families in the pandemic we now need to balance the books," Hunt said in a statement.

"That becomes much easier when inflation is under control because higher inflation pushes up interest rates, so we need to stick to the plan to get it down." ($1 = 0.8120 pounds)

($1 = 0.8123 pounds)

(Reporting by William Schomberg and Muvija M; Editing by Kate Holton)