UK public finances moved into surplus in July, thanks to a sharp increase in income tax receipts, leaving year-to-date borrowing well below year ago levels. Excluding public sector banks, government accounts were in surplus of Stg1.290 billion last month after borrowing touched Stg100 million in July of 2014. Public finances have not been positive in the month of July since 2012.
Income tax takings improved by 5.3 percent on the year to Stg18.525 billion, the best performance in July since records began in 1997. Corporation tax receipts were also stronger, jumping by 3.9 percent on 2014 to Stg6.942 billion, the highest since July of 2013.
Over the first four months of the fiscal year, borrowing, excluding public sector banks, totaled Stg24.0 billion, 7.3 percent below the same period of last year. The fall in borrowing at the start of the year allowed Chancellor of the Exchequer George Osborne to shave the borrowing target for the current fiscal year to Stg69.5 billion in the budget presented last month, from a projection of Stg75.3 billion in March.
Including public sector banks, the government finances were in surplus by Stg2.069 billion compared to a positive balance of Stg681 million in July of 2014. Over the 2014/15 fiscal year, borrowing was revised downward to Stg88.045 billion, from the Stg89.177 billion reported last month. That left net debt at 80.7 percent of GDP, highest for the end of a fiscal year since 1968.
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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