Public sector finances moved back into the red in line with the usual seasonal pattern in February. At £7.48 billion, the deficit on overall public sector net borrowing (PSNB) was more than £2 billion larger than the market consensus but still down from £10.92 billion a year ago. The January surplus was revised down to £17.04 billion but this was the fourth consecutive month in which borrowing was lower than in the equivalent month a year earlier. Excluding public sector banks (PSNB-X), the shortfall stood at £8.40 billion, down from £11.84 billion in February 2023.

Total receipts rose £7.4 billion or about 10 percent on the year, the largest percentage increase in seven months. At the same time, spending was up £15.2 billion as final cost-of-living payments combined with inflation driven spending to offset the reduced cost of the largely closed energy support schemes. As a result, net debt was 97.1 percent of GDP, having peaked at 99.2 percent in September and October 2020.

With just one month of the current financial year to go, the February data put the cumulative PSNB-X at £106.8 billion. This is £4.6 billion less than the same period in FY2022/23 and the lowest in four years. Accordingly, the signs are that government borrowing is gradually being brought under control. Even so, further net tax increases will be needed if the medium-term fiscal targets laid out in the Budget are to be met. The UK RPI now stands at minus 22 and the RPI-P at minus 18, both measures showing overall economic activity falling slightly short of market expectations.

Following the usual sizeable surplus in January, government finances are seen sliding back into the red with overall net borrowing (PSNB) forecast at £5.0 billion and, after excluding public sector banks (PSNB-X), at £5.9 billion.

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.