UK public finances in August leave Hammond little room for Brexit budget boost

LONDON (Reuters) - Britain's public finances showed a slightly bigger-than-expected deficit in August, leaving Chancellor Philip Hammond little room for maneuver as he prepares his first post-Brexit vote budget plans.

Britain ran a budget shortfall - excluding state-owned banks - of 10.55 billion pounds last month, lower than a deficit of 11.47 billion pounds in the same month last year.

But economists had expected a deficit of 10 billion pounds, according to the median forecast in a Reuters poll.

There were no clear signs of any major impact on the public finances from June's vote to leave the European Union, the ONS said.

However, value-added tax receipts rose at their slowest annual pace since March of last year.

Hammond spoke in July about a possible "re-set" of fiscal policy to offset the economic hit from the Brexit vote. But he has since played down expectations that he might announce a surge in public spending when he delivers a half-yearly budget update on Nov. 23.

He told lawmakers earlier this month that he might fund modest infrastructure projects if needed.

The ONS said receipts from income and corporation taxes rose strongly compared with a year ago, although government debt interest payments were also higher, owing to increased payments on inflation-linked bonds.

The increase in income tax receipts was linked to a weaker performance of self-assessment returns in July, which bounced back in August.

For the first five months of the 2016/17 tax year, public sector net borrowing was nearly 13 percent lower than between April and August last year at 33.8 billion pounds.

However, Britain's official budget forecasters had estimated the deficit would narrow to 55.5 billion pounds in the full 2016/17 financial year - a target which looks out of reach as the economy is expected to slow following the Brexit vote.

Hammond has already dropped the target of his predecessor George Osborne of turning the budget deficit into a surplus by 2020 but has said he will tackle Britain's "unhealthy" public finances.

Britain's budget deficit stood at 4.1 percent of economic output in the last financial year, down from over 10 percent in 2010 but still among the highest for a developed nation.

Before the referendum, Britain's finance ministry said the economic shock of a vote for Brexit could increase public sector net borrowing by 24 billion pounds or more in 2017/18.

However, the immediate shock of the vote appears to have been less severe than many forecasts. Data last week showed no impact on consumer demand and little hit to the labor market in August. Economists say it remains too early to gauge the longer-term effect of the vote.

(Reporting by Andy Bruce and William Schomberg)

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