GB: Public Sector Finances

Tue May 22 03:30:00 CDT 2018

Consensus Actual Previous Revised
PSNB Stg7.2billion Stg6.23billion Stg-0.26billion Stg-0.81billion
PSNB-X Stg8.5billion Stg7.84billion Stg1.35billion Stg0.80billion

UK public sector finances were in rather better shape than expected in April. Overall public sector net borrowing (PSNB) was Stg6.23 billion after a larger revised Stg0.81 billion surplus in March and down from Stg7.34 billion a year ago. More importantly, excluding public sector banks, the shortfall was Stg7.84 billion, also short of market expectations, and, following a smaller revised Stg0.80 billion in March, more than 12 percent less than in April 2017. It was also the least net borrowing in April since 2008.

The revisions reduced the full year PSNB-X to Stg40.5 billion in FY2017/18, some Stg2.1 billion less than reported last month and a 12.3 percent fall versus FY2016/17.

The underlying trend in government borrowing continues to decline faster than generally expected. However, the good news here has been largely due to a relatively limited impact from Brexit uncertainty on economic activity. With time running out to finalise any agreement with the EU and the first quarter economy all but stagnating, the risk is that upcoming data could well start to deteriorate soon.

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.