UK borrows less in June but fiscal challenge for Burnham remains huge

LONDON, July 21 (Reuters) - Britain's government borrowed £16 billion ($21.51 billion) in June, a third less than in the same month last year, according to official data which nonetheless showed the scale of the fiscal challenge facing new Prime Minister Andy Burnham.

A Reuters poll of economists included a median forecast of a deficit of £18 billion for the last full month before Burnham replaced Keir Starmer as prime minister.

The Office for National Statistics said borrowing in June was lowered by stronger tax receipts and weaker expenditure including a fall in inflation-linked debt payments, although interest costs were the fourth highest on record for the month.

After arriving in Downing Street on Monday, Burnham re-committed to a pledge to stick to the fiscal rules followed by Starmer but also said there could be flexibility within them.

Burnham appointed as his finance minister John Healey who resigned as defence minister from Starmer's government in protest at an increase in defence spending that he thought was too small.

Tuesday's data showed day-to-day spending was £42 billion in the red in the first three months of the tax year, almost 11% lower than in the same period a year earlier but £1.3 billion above official forecasts that underpin the government's budget.

The fiscal rules require the current budget to be in balance with tax receipts by the end of the decade.

Burnham's government announced on Tuesday that it would cut taxes on domestic electricity bills later this year to help ease the cost of living for people living in Britain. The cost of the measure would be paid for by the scrapping of a digital ID scheme.

($1 = 0.7439 pounds)

(Writing by William Schomberg, editing by William James)