Hammond to raise UK borrowing target by 10 billion pounds, funded by T-bills - Poll

LONDON (Reuters) - Chancellor of the exchequer Philip Hammond will need to borrow 10 billion pounds more this financial year than the government previously planned, funded mostly by short-term treasury bills rather than gilts, according to a Reuters poll.

Britain's Chancellor Philip Hammond arrives at Downing Street in central London, Britain October 31, 2016. REUTERS/Stefan Wermuth

Hammond is due to deliver a budget statement - his first - on Wednesday.

The independent Office for Budget Responsibility (OBR) looks set to paint a much worse picture for economic growth between now and the end of the decade as Britain leaves the European Union, with the outlook for public finances suffering as a result.

While government borrowing in the 2016/17 financial year so far is 10 percent less than it was at the same point in 2015, progress towards cutting the deficit has been much slower than hoped as tax revenues have disappointed.

Furthermore, the economy is expected to slow in the coming year in response to June’s vote to leave the EU.

The Reuters poll of economists and strategists from 13 gilt-edged market makers - Britain’s primary government bond dealers - suggested public sector net borrowing, excluding state-owned banks, will stand at 66 billion pounds ($82 billion) by end of the current financial year.

The OBR had previously forecast borrowing of 55.5 billion pounds in the financial year ending next March.

Median forecasts from the poll showed the extra borrowing will be financed with a 6.5 billion pound increase in the stock of T-bills. By contrast, the Debt Management Office looks likely to bump up its gilt issuance plans by just 3 billion pounds from its current remit of 131.5 billion pounds.

Some economists think even more of the borrowing could be done through short-term debt, the DMO’s preferred method of dealing with in-year changes in government borrowing needs.

“We expect the upward revision of 11.5 billion pounds to this year’s funding requirement to be entirely financed through T-bills, the most malleable part of the funding remit,” RBS rates strategist Simon Peck said.

Additional reporting by Jamie McGeever, additional polling by Sarmista Sen in Bengaluru; Editing by Catherine Evans