GB: Public Sector Finances

Fri Oct 20 03:30:00 CDT 2017

Consensus Actual Previous Revised
PSNB Stg5.7billion Stg5.33billion Stg5.09billion Stg4.14billion
PSNB-X Stg6.5billion Stg5.90billion Stg5.67billion Stg4.72billion

UK public sector borrowing was smaller than expected in September. Overall net borrowing (PSNB) stood at Stg5.33 billion, up from a downwardly revised Stg4.14 billion in August but, more importantly, short of the Stg6.03 billion level posted a year ago. Excluding public sector banks (PSNB-X) the deficit weighed in at Stg5.90 billion. This compared with Stg4.72 billion in the previous month and Stg6.61billion in September 2016. It was also the lowest September outturn since 2007.

September's surprisingly optimistic data were largely attributable to stronger VAT and capital gains tax inflows; the former up Stg400m on the year and the latter Stg600 million higher. However, corporate receipts fell for a fourth consecutive month. The new and revised figures mean that the cumulative PSNB-X for the first half of the fiscal year was Stg32.5 billion, some 7.2 percent less than during the same period in FY2016/17. Net debt (excluding the BoE) was 80.0 percent of GDP, a 0.4 percentage point reduction from a year earlier.

Coming just a few weeks ahead of his Autumn Budget, today's results will be very welcome by Chancellor of the Exchequer Hammond. However, the good news here is set to be tempered by recent downward revisions to UK productivity that will make further reductions in public sector borrowing all the harder to achieve.

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.