(Bloomberg) --

U.K. government borrowing was significantly lower than forecast in the first half of the fiscal year, a boost for Chancellor of the Exchequer Rishi Sunak ahead of his budget next week. The budget deficit totaled 108.1 billion pounds ($149 billion) between April and September, the Office for National Statistics said Thursday. That compares with the 152 billion pounds predicted by the Office for Budget Responsibility in March. The deficit in September alone stood at 21.8 billion pounds, a slightly lower figure than economists expected.

Sunak has made restoring order to the pandemic-ravaged public finances a key mission of his tenure. In his budget on Oct. 27, he’s expected to set a target to eliminate borrowing except for investment by the middle of the decade. That may mean any giveaways are likely to be limited, especially since the Treasury is concerned that increasing spending would backfire by prompting the Bank of England to raise interest rates more aggressively.

The public finances are benefitting from a stronger-than-expected rebound from coronavirus lockdowns, and borrowing in the current fiscal year could come in as much as 50 billion pounds below the 234 billion pounds forecast by the OBR. The fiscal watchdog is preparing new projections for the budget.

But bringing down the deficit may prove harder in future years. A key threat is the cost of government debt, which is running 50% higher than a year earlier. 

The surge is due to a spike in inflation as a quarter of the national debt is linked to retail prices. The RPI rose at the fastest pace since 2011 last month. Bank of England interest-rate increases, which markets expect to begin next month, would further increase debt-servicing costs.


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