Public sector finances were in worse shape than expected in June. Overall net borrowing (PSNB) was £13.59 billion, well above the market consensus and following an upwardly revised £15.57 billion in May. However, compared with a year ago, the shortfall declined £3.24 billion. Excluding public sector banks (PSNB-X), the red ink stood at £14.51 after a larger revised £16.50 billion in mid-quarter and £17.75 billion in June 2023.

Total public sector spending fell £1.3 billion versus last June helped by a large drop in debt interest payments. Receipts were up £1.6 billion on the year on the back of higher tax inflows. Net debt was 99.5 percent of GDP, up from 99.1 percent in May and 3.8 percentage points versus June 2023. Broadly speaking, it remains in line with the levels last seen in the early 1960s.

The June PSNB-X was £2.9 billion more than forecast by the Office for Budget Responsibility (OBR) and so underlines fiscal problems facing the new Labour government. Achieving the targeted fully funded current budget will not be easy, especially should economic activity in general continue to fall short of market expectations - the UK RPI currently stands at minus 30 and the RPI-P at minus 32.

Overall net borrowing (PSNB) is seen falling from £14.1 billion in May to £12.0 billion with the ex-public sector bank deficit declining from £15.0 billion to £12.9 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.