Public sector finances were a little weaker than expected in March. Overall net borrowing (PSNB) was Stg4.36 billion, up from Stg3.53 billion a year ago and following a revised Stg0.66 billion surplus in February. More importantly, excluding public sector banks (PSNB-X) the shortfall was Stg5.09 billion versus Stg4.25 billion in March 2016.
The March data mean that, for the full fiscal year, the PSNB-X weighed in at Stg52.04 billion and so only marginally above the Stg51.7 forecast made by the Office for Budget Responsibility (OBR). The government would have preferred an undershoot but, given the scope for revisions next month, is unlikely to be troubled. Still, it will not be happy with a 3.0 percentage point rise on the year in the debt/GDP ratio to 86.6 percent.
The Chancellor promised to maintain a fiscally tight policy going forwards but this may well be influenced by how the economy is impacted by Brexit issues.
The public sector net borrowing requirement (PSNB) is the difference between the sector's receipts and expenditure and so provides a simple measure of government fiscal policy. In response to the global economic crisis in 2008/09 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. It 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 net 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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