Sterling slumps as June’s budget deficit hits four-year high

Forex

Britain’s budget deficit grew in the first three months of the tax year. The figures come in the midst of the UK leadership contest, but both Boris Johnson and Jeremy Hunt have committed to tax cuts and higher spending.

The figures had an immediate impact on sterling, which dropped 0.28 per cent against the dollar to 1.251 as economists warned the slump was a challenge for the incoming Prime Minister.

The UK’s budget deficit hit a four-year high for June at £7.2bn, almost double the £3.3bn for last year, the Office for National Statistics (ONS) revealed.

In the three months to June, borrowing was a third higher than the same period in 2018 in 17.9 billion pounds. Public sector net debt rose to £1.81 trillion, which is the equivalent of 83.1% of gross domestic product (GDP). June’s higher borrowing was linked to increased interest costs for inflation-linked government debt and higher spending on public services.

However, there was a “notable increase” in expenditure on goods and services, which reached £1.2bn.

The figures come as a blow for the leadership challenger, Johnson and Hunt, as it comes hot on the heels of economist predictions that their respective promises of tax cuts and increased spending could cost the economy tens of billions.

The pound tumbled in response to the news, in what has already been a shaky period for the currency. Sterling hit a 27-month low against the dollar earlier this month and slumped to a six-month low against the Euro. While much of its weakness is a result of the strong dollar, Brexit and economic uncertainty has plagued the pound.

Gold also pushed to a six-year high following the news, bouncing off the back of rising debt and falling interest rates. The last time gold traded this high for UK traders was summer 2011.