GB: Public Sector Finances

Thu Sep 21 03:30:00 CDT 2017

Consensus Actual Previous Revised
PSNB Stg6.5billion Stg5.09billion Stg-0.760billion Stg-1.29billion
PSNB-X Stg7.1billion Stg5.67billion Stg-0.184billion Stg-0.72billion

Public sector finances were again in rather better shape than generally expected in August. Overall net borrowing weighed in at Stg5.09 billion, down from Stg6.34 billion a year ago and that after a larger revised Stg1.29 billion surplus in July. More significantly, at Stg5.67 billion, excluding public sector banks (PSNB-X) the deficit was even further short of market forecasts. This also followed an upwardly revised Stg0.72 billion surplus last time and compares favourably with a Stg6.92 billion shortfall in August 2016.

Much of the improvement was attributable to stronger VAT receipts which climbed to a new record high for the month. However, this was partially offset by an unexplained drop in corporate tax receipts.

The August data put the cumulative PSNB-X over the fiscal year to date at Stg28.3 billion, a Stg0.2 billion decrease versus the same period in FY2016/17 and the lowest outturn since 2007. Having just abandoned its public sector pay cap, today's figures should come as some relief to the government. Borrowing trends would seem to at least heading in the right direction and wiggle room within what is still an essentially austerity-driven fiscal policy may be a little more than originally supposed.

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.