GB: Public Sector Finances

Tue Aug 22 03:30:00 CDT 2017

Consensus Actual Previous Revised
PSNB Stg-0.40billion Stg-0.760billion Stg6.28billion Stg-0.268billion
PSNB-X Stg0.90billion Stg-0.184billion Stg6.85billion Stg0.308billion

Public sector finances were in a stronger state than expected in July. Overall net borrowing (PSNB) weighted in at a minus Stg0.760 billion, compared with a minus Stg 0.268 billion a year ago. More significantly, excluding public sector banks (PSNB-X), the public sector posted the first surplus for the month since 2002, with net borrowing at minus Stg0.184 billion, compared with Stg0.308 billion in July last year.

The stronger than expected outturns in part reflected a rise in self-assessment receipts by Stg 0.8 billion in July, after falling in July 2016, and an increase in value-added-tax receipts of Stg0.5 billion. As a result, net debt (ex-BoE transfers) was 80.3 percent of GDP, an improvement of 0.4 percentage points from July last year.

Debt interest outlays increased by Stg0.7 billion, however, following a Stg1.2 billion increase in June. This was again mainly the effect of sharply higher inflation in previous months, which increased expenditures on index-linked gilts, raising interest payments by a total of Stg4.1 billion over the first four months of the financial year.

And corporate tax receipts fell Stg0.1 billion, down for the second straight month after June's Stg0.3 billion decline. Nevertheless, corporate tax receipts are up 0.2 billion year-to-date, to Stg19.2 billion.

Borrowing over the first third of the 2017/2018 fiscal year totalled Stg22.8 billion, 9.0 percent above the same period last year. This does, however, also reflect a 1.0 billion downward revision to Stg45.2 billion net borrowing for fiscal year 2016/2017, down from Stg46.2 billion reported last month, and sharply lower than the Stg51.7 billion target set by the Office for Budget Responsibility in March.

Although the outlook for fiscal policy is still clouded by the loss of the government's parliamentary majority and the fallout from Brexit, today's report shows public borrowing maintaining a course towards the stated aim of balancing the books by 2025.

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.