The U.K. budget surplus decreased in July despite higher corporation tax receipts, suggesting that the "Brexit" vote is likely to reduce the pace of improvement in public finances going forward.
The public sector net borrowing, excluding public sector banks, was a surplus GBP 1 billion in July, data from the Office for National Statistics showed Friday.
The surplus decreased by GBP 0.2 billion from July 2015. Economists had forecast a bigger surplus of GBP 1.9 billion. The budget usually register surplus in July as it is a key month for tax receipts.
While the public finances are expected to be increasingly pressurized by the Brexit vote going forward, it was premature for there to have been much impact in July, IHS Global Insight Economist Howard Archer said.
With the Bank of England having delivered substantial package on monetary policy front, attention is now focused on what the government will do on the fiscal front to help the economy deal with its Brexit vote, Archer noted.
The new Chancellor Philip Hammond already indicated that the fiscal policy could be "reset" in the Autumn Statement.
While this does not mean that austerity is over, it looks likely that the pace of deficit reduction will be lessened over the coming years, Paul Hollingsworth at Capital Economics, said.
Of the GBP 1.0 billion surplus in July, the public sector saved GBP 3.8 billion related to the cost of its "day-to-day" activities. However, it spend GBP 2.8 billion on infrastructure, which was GBP 0.6 billion more than in July 2015.
Central government receipts increased 3.4 percent. Corporation tax and income-tax related payments climbed 8.4 percent and 1.9 percent, respectively. At the same time, central government expenditure grew 1.4 percent in July.
In the current financial year-to-date period, PSNB fell by GBP 3 billion to GBP 23.7 billion.
The Office for Budget Responsibility had estimated that the public sector will borrow GBP 55.5 billion during the financial year ending March 2017, which represents a reduction of GBP 19.8 billion on the financial year ending March 2016.
At the end of July, public sector net debt was GBP 1,604.2 billion, equivalent to 82.9 percent of gross domestic product. This was the second successive month of debt falling on the year as a percentage of GDP.
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