GB: Public Sector Finances

Tue Apr 24 03:30:00 CDT 2018

Consensus Actual Previous Revised
PSNB Stg1.1billion Stg-0.26billion Stg-0.27billion Stg-0.41billion
PSNB-X Stg2.9billion Stg1.35billion Stg1.34billion Stg1.20billion

Public sector finances were in surprisingly good shape in March. Overall net borrowing (PSNB) was in a net surplus of Stg0.26 billion, a good deal more healthy than expected and also a notable improvement on the Stg0.52 billion deficit reported in March 2017. More importantly, borrowing excluding public sector banks (PSNB-X) was only Stg1.35 billion, a Stg0.78 billion drop compared with March last year.

As a result, the full fiscal year PSNB-X weighed in at Stg42.6 billion, a 7.6 percent reduction from FY2016/17 and the lowest outturn since FY2006/07. Indeed, the current budget was even Stg112 million in the black, its first surplus since FY2001/02. There was also better news on net debt which, at 76.3 percent of GDP, was down from 79.5 percent last time. Record receipts from income and corporate taxes as well as VAT were mainly to thank with the strength of inflows here reflecting (so far) less of a hit from Brexit uncertainty that originally expected.

The government should be quietly pleased with the full year borrowing figures. Having undershot the official target, it has a little more wiggle room to provide an extra economic boost should it feel required as the next election gets closer.

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.