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UK budget deficit widened unexpectedly, but factory orders rise – business live UK budget deficit widened unexpectedly, but factory orders rise – business live
(35 minutes later)
Time for a quick recap:
Budget Eve has got off to a bad start for Philip Hammond, with new figures showing that Britain’s deficit rose last month. The UK borrowed £8bn in October, up from £7.5bn a year ago and almost a billion pounds more than the City expected.
The higher borrowing was triggered by a rise in the cost of repaying the UK’s existing debts; the rise in inflation has pushed up the yield on index-linked government bonds.
City experts say the figures highlights the dilemma facing Hammond. Tomorrow’s budget may show a rise in borrowing in future years, due to weak productivity.
However, borrowing this financial year is still down almost 10%, rather better than forecast in March.
But..... the weaker pound has also helped British factories. New orders have accelerated at the fastest rate since 1988, with manufacturers seeing a rise in exports.
Anna Leach, CBI Head of Economic Intelligence, said:
“UK manufacturers are once more performing strongly as global growth and the lower level of sterling continue to support demand. Output growth has picked up again, and export order books match the highest in more than 20 years.
“Nonetheless, uncertainty continues to hold back investment and cost pressures remain strong. Manufacturers will be hoping the Budget brings some relief from the business rates burden in particular.”
Airbus, the aeroplane manufacturer, has warned that Brexit could force its wing design business overseas. Other countries are ‘knocking on the door’, its UK boss says.
The news that Britain’s deficit rose to £8bn last month has disappointed some City traders.
Carlo Alberto De Casa, chief analyst at ActivTrades, says the chancellor would have hoped for a drop in borrowing (as economists had indeed expected).
This isn’t the news Hammond will have been hoping for the day before the budget, as the deficit has increased to £8.0bn from £7.5bn a year earlier.
Despite rises in income and VAT receipts and expectations the deficit would narrow closer to £7.bn, inflation and the effect it has had on debt costs has caused the deficit to widen and suggests Carney was right to start focusing on keeping inflation under control with his historical interest rate rise.
William Anderson Jones, head of UK corporate dealing at RationalFX, says sterling hasn’t been hit, though:
Higher borrowing costs due to inflation drove the deficit up, although the effect on the pound has been limited.
The deficit figures come as analysts await Chancellor Phillip Hammond’s budget tomorrow. Today’s data highlights the challenge Hammond faces, as many analysts expect a call for more spending as the UK’s economic growth weakens. Investors will be watching the pound closely to see how it reacts tomorrow to the budget.”
John Hawksworth, PwC chief economist, says Hammond will be pleased that borrowing has dropped during this financial year. But....
The more critical issue for the Budget is how public borrowing will evolve in future years. Lower than expected productivity growth is likely to weigh more heavily in the OBR’s new forecasts tomorrow than the borrowing undershoot this year.
“We do expect the Chancellor to retain a reasonable amount of headroom in meeting his medium-term fiscal target, but he is likely to want to retain most of this as a contingency to deal with any future adverse Brexit-related shocks. While we do expect some giveaways in the Budget on housing, health and some areas of public sector pay, we also expect these to be largely offset by clawbacks in other tax and spending areas.”
Fiona Cincotta, senior market analyst at City Index, agrees that the next few years will be tough.
Hammond is still on target to beat a target of £58.3 billion for the 2017/18 financial year. Not bad considering the circumstances.
This means that this year Hammond actually still has some room for manoeuvre, however looking ahead to the coming years, his challenge looks set to intensify. The ONS is expected to forecast lower levels of growth for the UK in the coming years. For the Chancellor, this means lower tax receipts and therefore less money coming in.
Matt Whittaker of the Resolution Foundation also reckons the chancellor’s headroom is shrinking...
That good news is likely to provide some offset to tomorrow's productivity downgrade. But the Chancellor's headroom is still likely to shrinkhttps://t.co/Kxw4j14JpB pic.twitter.com/KMmpo1myHA
Over at parliament, the head of Airbus UK has warned MPs that other countries are keen to lure some of its British manufacturing business.Over at parliament, the head of Airbus UK has warned MPs that other countries are keen to lure some of its British manufacturing business.
Katherine Bennett told the Business, energy and industrial strategy committee that Airbus’s wing design business - its “crown jewels” – has won covetous looks from overseas.Katherine Bennett told the Business, energy and industrial strategy committee that Airbus’s wing design business - its “crown jewels” – has won covetous looks from overseas.
She also warned that Airbus staff who are EU citizens are very concerned about the future, and whether they’ll be able to work in the UK after Brexit.She also warned that Airbus staff who are EU citizens are very concerned about the future, and whether they’ll be able to work in the UK after Brexit.
Airbus employs some 6,000 people at its North Wales plant at Broughton, Flintshire.Airbus employs some 6,000 people at its North Wales plant at Broughton, Flintshire.
Airbus UK Vice President warns that wing designer are "crown jewels" of the industry. Currently theirs are designed and made in UK but other countries are "knocking on the door" as result of #BrexitAirbus UK Vice President warns that wing designer are "crown jewels" of the industry. Currently theirs are designed and made in UK but other countries are "knocking on the door" as result of #Brexit
Airbus UK boss Katherine Bennett: "Other countries would dearly love to build wings and believe you me they're knocking at the door as a result of the situation we're in".Airbus UK boss Katherine Bennett: "Other countries would dearly love to build wings and believe you me they're knocking at the door as a result of the situation we're in".
Guardian Business has launched a daily email.Guardian Business has launched a daily email.
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Despite the recent surge in orders, UK factory bosses expect growth to slow over the next quarter.Despite the recent surge in orders, UK factory bosses expect growth to slow over the next quarter.
A failure to invest in new equipment may be to blame.....A failure to invest in new equipment may be to blame.....
Manufacturers expect growth in output to slow—despite surging orders—according to the CBI. This signals that capacity constraints are biting, because manufacturers have lacked the confidence to invest due to Brexit risk. pic.twitter.com/3xtj5eyQZRManufacturers expect growth in output to slow—despite surging orders—according to the CBI. This signals that capacity constraints are biting, because manufacturers have lacked the confidence to invest due to Brexit risk. pic.twitter.com/3xtj5eyQZR
Newsflash: UK factories have just reported the biggest jump in new orders since 1988, as the weak pound boosts exports.Newsflash: UK factories have just reported the biggest jump in new orders since 1988, as the weak pound boosts exports.
That’s according to the CBI’s monthly survey of British manufacturing. It found that output rose in the last quarter, with more orders coming in from abroad.That’s according to the CBI’s monthly survey of British manufacturing. It found that output rose in the last quarter, with more orders coming in from abroad.
Some 28% of manufacturers reported total order books to be above normal, and 11% said they were below normal. That gave a net balance of +17% -- the highest figure since August 1988.Some 28% of manufacturers reported total order books to be above normal, and 11% said they were below normal. That gave a net balance of +17% -- the highest figure since August 1988.
UK CBI Nov trends total orders 17 vs 3 expected https://t.co/OzAMoOAHus pic.twitter.com/AifJ99fTg3UK CBI Nov trends total orders 17 vs 3 expected https://t.co/OzAMoOAHus pic.twitter.com/AifJ99fTg3
The CBI says that orders for food & drink and chemicals rose particularly sharply.The CBI says that orders for food & drink and chemicals rose particularly sharply.
Export order books strengthened “notably” for chemicals, electronics and transport goods.Export order books strengthened “notably” for chemicals, electronics and transport goods.
Both total and export order books improved over the last three months, with total orders now among the strongest since August 1988. #CBI_ITS https://t.co/1k4iI8q8tN pic.twitter.com/P8FlF2cJRSBoth total and export order books improved over the last three months, with total orders now among the strongest since August 1988. #CBI_ITS https://t.co/1k4iI8q8tN pic.twitter.com/P8FlF2cJRS
Here’s John McDonnell MP, Labour’s Shadow Chancellor, on today’s public finances:Here’s John McDonnell MP, Labour’s Shadow Chancellor, on today’s public finances:
“These figures are a reminder of the continued failure of both Philip Hammond and Theresa May over these past seven years. The deficit has still not been eliminated as they promised it would be by 2015, and the national debt continues to grow. The rise in the Government’s deficit over October shows once again that seven years of Tory spending cuts have caused pain and misery for millions with little to show for it.“These figures are a reminder of the continued failure of both Philip Hammond and Theresa May over these past seven years. The deficit has still not been eliminated as they promised it would be by 2015, and the national debt continues to grow. The rise in the Government’s deficit over October shows once again that seven years of Tory spending cuts have caused pain and misery for millions with little to show for it.
“It further highlights why it is so vital that we see a change of course in the Budget tomorrow, halting the growing emergency in our public services and ending their failed austerity policies.“It further highlights why it is so vital that we see a change of course in the Budget tomorrow, halting the growing emergency in our public services and ending their failed austerity policies.
“The next Labour government will set out a serious plan for the public finances with strategic investment underpinned by our Fiscal Credibility Rule, to help build a high-wage, high-skill economy for the many not the few.”“The next Labour government will set out a serious plan for the public finances with strategic investment underpinned by our Fiscal Credibility Rule, to help build a high-wage, high-skill economy for the many not the few.”
October’s borrowing figures are another sign that the Brexit vote is hurting the UK economy, says Labour MP Chris Leslie.October’s borrowing figures are another sign that the Brexit vote is hurting the UK economy, says Labour MP Chris Leslie.
He’s alarmed that rising inflation drove up the cost of servicing the national debt (as explained here).He’s alarmed that rising inflation drove up the cost of servicing the national debt (as explained here).
Leslie says it might prompt a rethink about Britain’s exit from the EU:Leslie says it might prompt a rethink about Britain’s exit from the EU:
“Rather than delivering a huge windfall for public services and our economy, it is clear that Brexit is in fact damaging the public finances.“Rather than delivering a huge windfall for public services and our economy, it is clear that Brexit is in fact damaging the public finances.
“Soaring inflation resulting from the fall in the value of the pound is resulting in rising debt costs. Our NHS and public services are being starved of vital funding. And the Brexit ‘war chest’ set aside by the Chancellor in March has now been virtually wiped out.“Soaring inflation resulting from the fall in the value of the pound is resulting in rising debt costs. Our NHS and public services are being starved of vital funding. And the Brexit ‘war chest’ set aside by the Chancellor in March has now been virtually wiped out.
“The Chancellor is running out of headroom. Nobody voted to be worse off, or for a weaker economy, and as these new facts emerge people are entitled to keep an open mind about whether this is the right course for our country.”“The Chancellor is running out of headroom. Nobody voted to be worse off, or for a weaker economy, and as these new facts emerge people are entitled to keep an open mind about whether this is the right course for our country.”
Howard Archer, chief economic adviser at the EY Item Club, says the “weakened” October public finances have denied Philip Hammond a boost ahead of Wednesday’s budget.Howard Archer, chief economic adviser at the EY Item Club, says the “weakened” October public finances have denied Philip Hammond a boost ahead of Wednesday’s budget.
#Hammond denied a boost going into Wednesday's #budget as #public #finances see y/y deterioration in Oct. PSNBex up to £8.0 bn from £7.5 bn in Oct 2016#Hammond denied a boost going into Wednesday's #budget as #public #finances see y/y deterioration in Oct. PSNBex up to £8.0 bn from £7.5 bn in Oct 2016
But...he also expects borrowing for the full financial year to be below forecasts.But...he also expects borrowing for the full financial year to be below forecasts.
Despite widening to £8.0 bn in Oct from £7.5 bn a year earlier, #UK #budget deficit (PSNBex) still down 9.6% y/y over Apr-Oct at £38.5 bn. If continued pattern for whole of 2017/18 would come in at £41.4 bn vs £58.3 bn seen in March budgetDespite widening to £8.0 bn in Oct from £7.5 bn a year earlier, #UK #budget deficit (PSNBex) still down 9.6% y/y over Apr-Oct at £38.5 bn. If continued pattern for whole of 2017/18 would come in at £41.4 bn vs £58.3 bn seen in March budget
Digging into the public finances, we can see that income tax receipts rose by 6.9% year-on-year in October, and VAT receipts rose by 2.3%.Digging into the public finances, we can see that income tax receipts rose by 6.9% year-on-year in October, and VAT receipts rose by 2.3%.
But corporation tax dropped by almost 1% compared with October 2016, and revenue from fuel duty dropped by 2.1%.But corporation tax dropped by almost 1% compared with October 2016, and revenue from fuel duty dropped by 2.1%.
You can see the dataset here.You can see the dataset here.
The full public finances report is online here.The full public finances report is online here.
Bloomberg describe Britain’s October’s public finances as “disappointing”, ahead of Wednesday’s budget.Bloomberg describe Britain’s October’s public finances as “disappointing”, ahead of Wednesday’s budget.
However, they still expect borrowing for 2017-18 as a whole to be lower than forecast.However, they still expect borrowing for 2017-18 as a whole to be lower than forecast.
Britain’s fiscal deficit unexpectedly widened as inflation saw debt costs rise to the highest for any October in 4 years https://t.co/QEFDXpkJGC pic.twitter.com/aCnl71SlLCBritain’s fiscal deficit unexpectedly widened as inflation saw debt costs rise to the highest for any October in 4 years https://t.co/QEFDXpkJGC pic.twitter.com/aCnl71SlLC
The ONS reports that UK government income, and spending, are both higher than a year ago.The ONS reports that UK government income, and spending, are both higher than a year ago.
In the current financial year-to-date, central government received £394.3bn in income, including £292.7bn in taxes. This was around 4% more than in the same period in the previous financial year.In the current financial year-to-date, central government received £394.3bn in income, including £292.7bn in taxes. This was around 4% more than in the same period in the previous financial year.
Over the same period, central government spent £420.4bn; around 3% more than in the same period in the previous financial year. Of this amount, just below two-thirds was spent by central government departments (such as health, education and defence), around one-third on social benefits (such as pensions, unemployment payments, Child Benefit and Maternity Pay), with the remaining being spent on capital investment and interest on government’s outstanding debt.Over the same period, central government spent £420.4bn; around 3% more than in the same period in the previous financial year. Of this amount, just below two-thirds was spent by central government departments (such as health, education and defence), around one-third on social benefits (such as pensions, unemployment payments, Child Benefit and Maternity Pay), with the remaining being spent on capital investment and interest on government’s outstanding debt.
Ross Campbell, public sector director at accountancy group ICAEW, says Philip Hammond doesn’t have much wriggle room for tomorrow’s budget.Ross Campbell, public sector director at accountancy group ICAEW, says Philip Hammond doesn’t have much wriggle room for tomorrow’s budget.
Looking at the annual trend, we are still running a large deficit which means our national debt continues to grow.Looking at the annual trend, we are still running a large deficit which means our national debt continues to grow.
UK public sector borrowing rose to £8bn in October (est. £7bn), up £500m since the same period last year, linked to recent higher inflation and increased debt costs.UK public sector borrowing rose to £8bn in October (est. £7bn), up £500m since the same period last year, linked to recent higher inflation and increased debt costs.
Economist Sam Tombs of Pantheon Economics reckons Britain will borrow less than forecast this financial year, despite the unexpected rise in October’s deficit.Economist Sam Tombs of Pantheon Economics reckons Britain will borrow less than forecast this financial year, despite the unexpected rise in October’s deficit.
Borrowing £0.5B higher in October than a year ago mainly due to a £1.2B jump in interest payments (blame high inflation). But borrowing is still on track to substantially undershoot March Budget forecasts: pic.twitter.com/kFh5oXEJ0JBorrowing £0.5B higher in October than a year ago mainly due to a £1.2B jump in interest payments (blame high inflation). But borrowing is still on track to substantially undershoot March Budget forecasts: pic.twitter.com/kFh5oXEJ0J
As this chart showed, the UK has been expected to borrow £58.3bn this financial year, up from £51.7 in 2016-17.As this chart showed, the UK has been expected to borrow £58.3bn this financial year, up from £51.7 in 2016-17.
However, the UK has only borrowed £38.5bn since April, some £4bn less than a year ago.However, the UK has only borrowed £38.5bn since April, some £4bn less than a year ago.
Britain’s deficit jumped last month because the cost of repaying existing government debt jumped in October.Britain’s deficit jumped last month because the cost of repaying existing government debt jumped in October.
That’s because some government bonds are linked to inflation, to protect bond-holders from a surge in the cost of living.That’s because some government bonds are linked to inflation, to protect bond-holders from a surge in the cost of living.
The retail prices index has hit 4% in October -- as the slump in the pound since the Brexit vote has driven import costs higher.The retail prices index has hit 4% in October -- as the slump in the pound since the Brexit vote has driven import costs higher.
And this is now hitting the public finances, meaning the government has to borrow more (and thus repay more in the future....)And this is now hitting the public finances, meaning the government has to borrow more (and thus repay more in the future....)
As the ONS puts it:As the ONS puts it:
In October 2017, the debt interest paid by central government was £6.0 billion, while this represents the highest October interest payment on record it remains less than the highest recorded monthly payment of £7.2 billion in April 2017.In October 2017, the debt interest paid by central government was £6.0 billion, while this represents the highest October interest payment on record it remains less than the highest recorded monthly payment of £7.2 billion in April 2017.
This increase in debt interest payment is largely due to the movements in the level of the Retail Prices Index (RPI).This increase in debt interest payment is largely due to the movements in the level of the Retail Prices Index (RPI).
Channel 4’s Helia Ebrahimi has tweeted the details:Channel 4’s Helia Ebrahimi has tweeted the details:
Public sector net borrowing was higher than expected in October: £8bn vs £7.1bn consensus driven by higher interest payments of £1.2bnPublic sector net borrowing was higher than expected in October: £8bn vs £7.1bn consensus driven by higher interest payments of £1.2bn
The big picture from today’s public finances is that the UK national debt continues to grow.The big picture from today’s public finances is that the UK national debt continues to grow.
The Office for National Statistics says:The Office for National Statistics says:
Public sector net debt (excluding public sector banks) was £1,790.4 billion at the end of October 2017, equivalent to 87.2% of gross domestic product (GDP), an increase of £147.8 billion (or 4.5 percentage points as a ratio of GDP) on October 2016.Public sector net debt (excluding public sector banks) was £1,790.4 billion at the end of October 2017, equivalent to 87.2% of gross domestic product (GDP), an increase of £147.8 billion (or 4.5 percentage points as a ratio of GDP) on October 2016.