GB: Public Sector Finances

Wed Feb 21 03:30:00 CST 2018

Consensus Actual Previous Revised
PSNB Stg-10.0billion Stg-11.62billion Stg0.98billion Stg0.28billion
PSNB-X Stg-8.0billion Stg-10.01billion Stg2.59billion Stg1.89billion

Government finances were in better shape than expected last month. January is seasonally a very good month for government inflows but a surplus on overall net borrowing (PSNB) of Stg11.62 billion was comfortably above market expectations. More importantly, the same was true of borrowing excluding public sector banks (PSNB-X) where the black ink weighed in at Stg10.01 billion, a marked improvement on the Stg11.63 billion recorded a year ago. Record VAT receipts for a January (Stg11.9 billion) were a key factor here.

The January data put the cumulative PSNB-X for the first ten months of the fiscal year at Stg37.7 billion, a 16 percent decline versus the same period in FY2007/08.

Subject to revisions, which can be sizeable, today's report means that the government has a reasonable chance of meeting its full fiscal year borrowing target of Stg49.9 billion. This would be more than a little useful should the ongoing Brexit negotiations turn really sour.

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.