At Stg8.58 billion, up from a significantly smaller revised Stg8.35 billion in May, UK total public sector borrowing (PSNB) was rather less than expected in June. However, excluding public sector banks (PSNB-X) it was Stg9.36 billion, slightly above the consensus call but again, only after a sizeable downward revision to the mid-quarter deficit which now stands at Stg9.13 billion.
Compared with a year ago, June's PSNB-X shrank Stg0.8 billion and, for the first quarter of the new financial year, was some Stg6.1 billion smaller at Stg25.1 billion. Borrowing last month was held in check by particularly robust corporate tax inflows which, at Stg1.72 billion, were nearly 14 percent higher than in June 2014 and, moreover, at a record for the period. Even so, net debt rose from May's 80.8% of GDP to 81.5 percent and so stands only just short of the 81.6 percent high reached in December last year.
The June data suggest that the slowdown in economic growth signalled by some of the recent indicators may be overstated. Nonetheless, fiscal policy will still be tightened in 2015, a factor that should ensure that the BoE is all the more wary about raising Bank Rate too soon.
In response to the global economic crisis the UK government introduced a number of measures designed to show the underlying state of public sector finances by omitting temporary distortions caused by financial interventions. The government bases its fiscal policy on these measures. To this end, the underlying gauge of government borrowing watched most closely by financial markets is the PSNB-X which takes overall borrowing (PSNB) but excludes public sector banks.
Changes in public sector finances can be used to determine the thrust of the government's fiscal policy. Generally speaking when the government has a rising deficit (or falling surplus) it is loosening its fiscal stance with a view to boosting economic activity. When its deficit is falling (or surplus rising), fiscal policy is being tightened in order to slow economic growth. However, sometimes changes in government financial positions can be due to factors outside of the government's control and do not signal an explicit shift in policy. This means that great care is needed in interpreting the data.
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