Philip Hammond has received a small dose of Christmas cheer after official figures showed public borrowing edged lower last month.
The Chancellor remains broadly on track to deliver his annual fiscal target after the Office for National Statistics (ONS) said borrowing fell by £200m to £8.7bn – beating expectations that it would remain unchanged at £8.9bn.
But economists said Mr Hammond faced a tough challenge ahead in improving public finances – in the wake of last month’s official Budget forecasts that painted a bleak picture for coming years.
Robust income tax revenue in November, 6% higher than a year ago, helped boost the Treasury’s coffers – at a time when, while pay growth is being squeezed, unemployment is continuing to fall.
VAT receipts rose too, partly helped by the uptick in inflation, and the numbers were also flattered by a change to the way public housing bodies are classified.
The public finance figures are the first since Mr Hammond’s autumn giveaway Budget last month – when he abolished stamp duty for first time buyers spending up to £300,000.
At the same time, the Office for Budget Responsibility (OBR) cut growth expectations and pencilled in an extra £30bn in borrowing over the next four years.
Britain’s economic growth has been slowing this year, which has been largely attributed to the vote last year to leave the European Union.
That is because the pound’s value collapsed after the referendum, pushing up the costs of imports and driving inflation higher – resulting in a squeeze on consumer spending.
But tax revenues have proved more resilient than first expected, and the OBR last month cut its borrowing forecast for the 2017/18 financial year from £58.3bn to £49.9bn.
For the financial year to date, borrowing now stands at £48.1bn, though that is before a seasonal surplus expected in January.
The borrowing figures come a day after the International Monetary Fund suggested Britain should look at raising taxes in order to drive down borrowing.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The Chancellor can go on his Christmas vacation content that the public finances have weathered the economy’s slowdown well this year.
More from Business
“But with slow growth likely to persist next year and little margin for error now left to meet fiscal rules, it’s unlikely that the Chancellor will be able to soften his fiscal plans materially further again.”
Investec’s Victoria Clarke said: “Philip Hammond’s goal of balancing the books in the medium term remains a challenging one.”
Source: Sky