Public sector finances began the new fiscal year with a sizeable and larger than expected deficit. Overall net borrowing (PSNB) was £19.59 billion following an upwardly revised £12.14 billion in March and £18.06 billion a year ago. Excluding public sector banks (PSNB-X), the red ink stood at £20.51 billion following the previous month's larger revised £13.06 billion and £18.98 billion in April 2023.

Total public sector spending rose £3.1 billion versus April 2023 with gains in spending on public services and benefits partially offset by reductions in central government interest payable and in subsidy payments resulting from the closure of energy support schemes. Receipts were up £1.6 billion. Net debt was 97.9 percent of GDP, down from 98.3 percent in March but broadly in line with the levels last seen in the early 1960s.

The April shortfall was £1.2 billion more than forecast by the Office for Budget Responsibility (OBR) and so underlines the government's limited room for any additional tax cuts ahead of a probable election later in the year. To this end, any such giveaways would not go down well in the gilt market. Following this morning's suite of data, the UK's RPI and RPI-P both stand at 19, showing overall economic activity running slightly ahead of market forecasts.

Having surprised on the upside in March, overall net borrowing (PSNB) is seen at £18.5 billion in April with the shortfall excluding public sector banks at £19.4 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.