UK public sector finances data published today showed a decline in overall net borrowing (PSNB) from a revised £17.52 billion in April to £14.1 billion in May, compared with £13.31 billion in May 2023. Excluding public sector banks (PSNB-X), borrowing fell from a revised £18.4 billion in April to £15.0 billion in May, compared with £14.3 billion in May 2023.

Total public sector spending rose £2.1 billion versus May 2023 with gains in spending on public services and benefits partially offset by reductions in subsidy payments resulting from the closure of energy support schemes. Receipts rose £1.5 billion on the year. Net debt was 99.9 percent of GDP, up from 97.9 percent in March and extending the recent upward trend.

Retail sales data also published today were considerably stronger than consensus forecasts. The UK RPI and RPI-P rose from minus 23 to minus 8 and plus 2 respectively, indicating that UK data are now coming in close to consensus expectations.

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.