GB: Public Sector Finances

Tue Nov 21 03:30:00 CST 2017

Consensus Actual Previous Revised
PSNB Stg6.6billion Stg7.46billion Stg5.33billion Stg4.43billion
PSNB-X Stg7.1billion Stg8.04billion Stg5.90billion Stg5.01billion

Overall public sector net borrowing (PSNB) was Stg7.46 billion, up from Stg6.95 billion in October 2016 but following a markedly smaller revised Stg4.43 billion in September. Excluding public sector banks (PSNB-X), the deficit was Stg8.04 billion, a Stg0.52 billion increase on a year ago but also after a Stg0.89 billion downwardly revised Stg5.01 billion last time. Indeed, at a cumulative Stg38.5 billion, the underlying red ink over the first seven months of the financial year was a healthy 9.6 percent short of its level during the same period in FY2016/17 and a 7-year low.

October's rather disappointing results reflect a fourth consecutive yearly decline in corporate tax receipts (at least partly due to methodological changes) as well as higher government debt interest payments, notably on index-linked instruments due to high UK inflation.

Still, with the net debt/GDP ratio (ex-BoE) now at 79.6 percent and so 0.3 percentage points short of its year ago reading, trends would seem to be moving in the right direction.

There is much uncertainty about the outlook for government finances and the Office for Budget Responsibility has indicated it will not be making any major revisions to its borrowing forecast on Wednesday. Nonetheless, today's figures should be reasonably well received by the government and suggest that there may be at least a little wiggle room for the Chancellor to address calls for less austere fiscal policy in tomorrow's Budget.

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.