Government borrowing in June highest since 2015

Public sector net borrowing rose sharply in June because of higher debt interest payments and rising spending on services, figures show.

It totalled £7.2bn, according to the Office for National Statistics, up from £3.3bn in June 2018.

It was the highest June borrowing figure since 2015, the ONS said.

Analysts said the figures would add to the uncertainty surrounding the UK economy in the run-up to Brexit and the imminent change of prime minister.

"The outlook for fiscal policy was already uncertain because of the extension of Brexit until 31 October, in addition to the imminent change of Conservative leader and prime minister," said the EY Item Club.

"Much will depend on whether the economy can shrug off its current weakness, as well as on Brexit developments. It will also be influenced by any changes to fiscal policy by the new prime minister and chancellor ."

'Notable increase'

Last month, the government took in £800m more in tax and National Insurance contributions than a year previously, but debt repayments rose by £2.1bn.

The ONS said there was "a notable increase" in expenditure on goods and services of £1.2bn, while the UK's contribution to the EU increased by £400m compared with June 2018.

In the three months to June, borrowing was 33% higher than the same period in 2018 at £17.9bn.

Public sector net debt rose to £1.81 trillion, or 83.1% of gross domestic product (GDP).

The latest figures, which show public spending running ahead of forecasts, come as concerns grow over the state of the UK economy in the run-up to Brexit.

The most recent GDP figures showed the economy grew by 0.3% in May after shrinking 0.4% in April.

But economists say that June's growth figures will have to be strong to avoid contraction in the second quarter.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said borrowing would probably just stay within the rules set out by the current Chancellor, Philip Hammond.

"His successor, however, looks highly likely to tear up the existing rules, setting the stage for a giveaway Budget in the autumn and for fiscal policy to materially boost GDP growth next year," he added.

"The Conservatives are desperate to improve their poll rating and public support for austerity has crumbled, so a fiscal boost is coming."

On Thursday, the Office for Budget Responsibility said borrowing could rise by £30bn a year in 2020-21 if the UK leaves the EU without a transition deal on 31 October.

The OBR was created in 2010 to give independent analysis of the UK's public finances.

In its first assessment of the economic impact of a no-deal scenario, the OBR used IMF analysis that shows the UK economy could contract by 2% in 2020 before recovering in 2021.