GB: Public Sector Finances

Wed Mar 21 04:30:00 CDT 2018

Consensus Actual Previous Revised
PSNB Stg-0.3billion Stg-0.27billion Stg-11.62billion Stg-11.72billion
PSNB-X Stg1.3billion Stg1.34billion Stg-10.01billion Stg-10.11billion

Public sector finances broadly matched expectations in February. Overall net borrowing (PSNB) was again in surplus, although at just Stg0.27 billion, it was well short of January's upwardly Stg11.72 billion. Excluding public sector banks (PSNB-X), borrowing was just 1.34 billion, also following a marginally larger revised surplus (Stg10.11) last time.

The PSNB-X was actually Stg2.5 billion above its mark a year ago but earlier gains ensured that the cumulative shortfall over the first eleven months of the fiscal year (Stg41.4 billion) was still more than 5 percent below the same period in FY2016/17. It was also the lowest 11-month total since the period ending February 2008.

Still, the Treasury could now struggle to meet the Stg45.2 billion full fiscal year target announced in last week's Spring Statement. Underlying trends seem to be moving the right direction but today's data will do nothing to deflect the ongoing austerity-driven focus of policy.

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.