GB: Public Sector Finances

Wed Oct 21 03:30:00 CDT 2015

Consensus Actual Previous Revised
PSNB Stg9.0billion Stg8.63billion Stg11.3billion Stg10.79billion
PSNB-X Stg10.1billion Stg9.41billion Stg12.1billion Stg11.57billion

Public sector finances were in slightly better shape than expected in September. At Stg8.63 billion overall borrowing (PSNB) was more than Stg2.1 billion less than its downwardly revised August outturn and, more relevantly, Stg1.32 billion short of its reading a year ago. At the same time, excluding public sector banks (PSNB-X) the deficit was Stg9.41 billion, a Stg1.56 billion decline from September 2014.

The improvement reflected stronger tax receipts with income tax up 4.1 percent on the year after a 3.5 percent fall in August and inflows from corporations fully 8.5 percent higher.

The September data put the cumulative PSNB-X over the financial year to date at Stg46.3 billion, a decline of 7 percent compared with the same period in FY2014/15. However, with signs that the economy is slowing it is far from certain that the government will be able to hit its full year Stg69.5 billion target. Moreover, the net debt ratio is still an issue, rising to 80.6 percent versus 79.9 percent in August and 79.5 percent a year ago.

In general fiscal policy continues to act as a break on UK growth which, in itself, provides further reason for supposing that as and when the BoE MPC does decide to start tightening, it will do so only slowly.

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.