GB: Public Sector Finances

Thu Dec 21 03:30:00 CST 2017

Consensus Actual Previous Revised
PSNB-X Stg9.0billion Stg8.69billion Stg8.04billion Stg7.83billion
PSNB Stg8.5billion Stg8.12billion Stg7.46billion Stg7.24billion

Public sector finances were in a slightly better state than expected in November. Overall net borrowing (PSNB) was Stg8.12 billion, up from a downwardly revised Stg7.24 billion in October but slightly short of the Stg8.28 billion posted a year ago. Excluding public sector banks (PSNB-X) the shortfall was Stg8.69 billion. This was larger than October's smaller revised Stg7.83 billion but less than the Stg8.86 billion seen in November 2016. Indeed, it was the lowest November print since 2007.

The November outturn put the cumulative PSNB over the first nine months of the financial year at Stg48.1 billion, a drop of Stg3.1 billion versus the same period of FY2016/17 and also a 10-year low.

On current trends the government looks to be on course to meet, if not undershoot, the Stg49.9 billion full year forecast made by the Office Budget Responsibility (OBR) in November. However, much will depend upon how the economy performs. Fourth quarter GDP looks to be shaping up quite well but consumer confidence has fallen to a 4-year low and business investment plans remain hampered by Brexit uncertainty. At this stage, the outlook for public sector borrowing is especially unclear.

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.