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UK borrowing hits lowest level since financial crisis, ahead of interest rate decision – business live UK borrowing hits lowest level since financial crisis, ahead of interest rate decision – business live
(35 minutes later)
John Hawksworth, chief economist at PwC, says the drop in UK borrowing will allow the government to relax its austerity policies.
However, tax rises will still be needed to fund the increase in NHS spending announced this week, he adds:
“As a share of GDP, public borrowing in 2017/18 is now estimated to be just 1.9%, the first time the budget deficit has been below 2% of GDP since 2001/2. Since the OBR estimates that the output gap in 2017/18 was close to zero, the structural budget deficit was probably also just below 2% of GDP in that year, meaning that the Chancellor has already met his medium term fiscal target set originally for 2020 with further deficit reductions likely over the next couple of years.
“So the Chancellor can afford to ease off on austerity without endangering his medium term fiscal targets. We estimate that, of the proposed £25 billion of real NHS spending rises across the UK by 2023/24, around £10 billion is already implicit in current spending plans used in OBR forecasts. So we estimate that the Chancellor may only need to raise taxes or increase borrowing relative to previous plans by around £15 billion in 2023/24 to fund these plans, which is equivalent to around 0.6% of GDP in that year. A net tax rise of around 0.3% of GDP, plus a modest borrowing rise of a similar magnitude would be enough to fund the additional health spending over and above that implicit in current fiscal projections.
Britain is on track to undershoot the government’s borrowing forecast by around £9bn this financial year, says Andrew Wishart of Capital Economics.
He also agrees that chancellor Philip Hammond has more firepower than expected:
Wishart says:
While we wouldn’t place too much weight on the estimates of borrowing in the early months of the fiscal year, since they are largely based on forecasts rather than actual data, the continued improvement in the public finances suggests that the deficit will undershoot the OBR’s forecast again this year.
What’s more, if the economy holds up as we expect, borrowing is likely to undershoot the OBR’s forecast by a more significant margin in subsequent years. This would allow the Chancellor to deliver the recently promised £15bn increase in health spending over the next five years while still meeting his fiscal target (for the cyclically-adjusted deficit to be less than 2% of GDP in 2020/21).
Today’s UK public finance figures look “fantastic”, says Samuel Tombs of Pantheon Economics.Today’s UK public finance figures look “fantastic”, says Samuel Tombs of Pantheon Economics.
He warns that the trend probably won’t continue, but there’s still room to increase NHS spending.He warns that the trend probably won’t continue, but there’s still room to increase NHS spending.
We still expect full-year public borrowing to be only a little below the OBR’s Spring Statement forecast.We still expect full-year public borrowing to be only a little below the OBR’s Spring Statement forecast.
The Chancellor, however, still will have scope to pause the fiscal consolidation at the Budget later this year, given that cyclically-adjusted borrowing as a share of GDP already will be below his 2020 target of 2% this year. Most of the likely extra borrowing, however, looks set to be earmarked for the NHS, leaving little scope for measures to boost households’ spending or business investment.The Chancellor, however, still will have scope to pause the fiscal consolidation at the Budget later this year, given that cyclically-adjusted borrowing as a share of GDP already will be below his 2020 target of 2% this year. Most of the likely extra borrowing, however, looks set to be earmarked for the NHS, leaving little scope for measures to boost households’ spending or business investment.
Howard Archer of the EY Item Club says:Howard Archer of the EY Item Club says:
The Chancellor will be heartened by the healthy start to the 2018/19 fiscal year following better-than-expected public finances in 2017/18.The Chancellor will be heartened by the healthy start to the 2018/19 fiscal year following better-than-expected public finances in 2017/18.
It suggests that he may have more room for manoeuvre in November’s Budget as he looks to find the extra funding needed for the high-profile increased spending promised for the NHS.It suggests that he may have more room for manoeuvre in November’s Budget as he looks to find the extra funding needed for the high-profile increased spending promised for the NHS.
Matt Whittaker of Resolution Foundation also believes chancellor Philip Hammond has more flexibility to boost government spending on services such as health.Matt Whittaker of Resolution Foundation also believes chancellor Philip Hammond has more flexibility to boost government spending on services such as health.
After the first 2 months of the financial year, the deficit is down 26% on the same period last year - compared with the OBR's projection of a 6% decline for 2018-19 as a whole. V early days, but the ChX might have more room for manoeuvre than he thought come the Autumn Budget pic.twitter.com/Xf5L4KBbxEAfter the first 2 months of the financial year, the deficit is down 26% on the same period last year - compared with the OBR's projection of a 6% decline for 2018-19 as a whole. V early days, but the ChX might have more room for manoeuvre than he thought come the Autumn Budget pic.twitter.com/Xf5L4KBbxE
The improvement in the UK public finances suggests there is room to boost spending on key public services.The improvement in the UK public finances suggests there is room to boost spending on key public services.
Rupert Harrison, former advisor to the Treasury, believes the NHS (just promised a spending increase) should benefit:Rupert Harrison, former advisor to the Treasury, believes the NHS (just promised a spending increase) should benefit:
Harrison (now at asset manager BlackRock) tweets:Harrison (now at asset manager BlackRock) tweets:
In fact today's ONS data show that the deficit in 2017/18 was 1.9% of GDP, the lowest since 2001/02. An incredible achievement, and a key reason why the government can now afford to spend more on priorities like the NHS pic.twitter.com/kcruEmbGlFIn fact today's ONS data show that the deficit in 2017/18 was 1.9% of GDP, the lowest since 2001/02. An incredible achievement, and a key reason why the government can now afford to spend more on priorities like the NHS pic.twitter.com/kcruEmbGlF
Of course as a result of the high deficits earlier in the decade public sector debt is too high for comfort and only just starting to come down as a % of GDP. In an ideal world the UK would aim to run a surplus to make sure it continues to fall... pic.twitter.com/KCYjGbnFsHOf course as a result of the high deficits earlier in the decade public sector debt is too high for comfort and only just starting to come down as a % of GDP. In an ideal world the UK would aim to run a surplus to make sure it continues to fall... pic.twitter.com/KCYjGbnFsH
But this isn't an ideal world, especially given the impact of Brexit uncertainty on the economy, so in my view it's reasonable to push surplus goal a long way to the right. Binding constraint on public finances for now should just be to keep debt falling (slowly) as a % of GDPBut this isn't an ideal world, especially given the impact of Brexit uncertainty on the economy, so in my view it's reasonable to push surplus goal a long way to the right. Binding constraint on public finances for now should just be to keep debt falling (slowly) as a % of GDP
The government will be delighted by today’s fall in borrowing, says Kamal Ahmed of the BBC:The government will be delighted by today’s fall in borrowing, says Kamal Ahmed of the BBC:
Treasury heaves sigh of relief. @ONS "Public sector net borrowing April 2017/March 2018 £39.5bn; £6.2bn less than in previous financial year and £5.7bn less than Office for Budget Responsibility expectation - lowest net borrowing since financial year ending March 2007."Treasury heaves sigh of relief. @ONS "Public sector net borrowing April 2017/March 2018 £39.5bn; £6.2bn less than in previous financial year and £5.7bn less than Office for Budget Responsibility expectation - lowest net borrowing since financial year ending March 2007."
Fraser Munro of the Office for National Statistics points out that last year’s borrowing figures were better than expected too:Fraser Munro of the Office for National Statistics points out that last year’s borrowing figures were better than expected too:
UK Public Finances: £39.5bn borrowing (PSNB ex) in 2017/18: £6.2bn less than in 2016/17 and £5.7bn less than OBR forecast https://t.co/u0Pn9bYHCE pic.twitter.com/acZ6rjLIzRUK Public Finances: £39.5bn borrowing (PSNB ex) in 2017/18: £6.2bn less than in 2016/17 and £5.7bn less than OBR forecast https://t.co/u0Pn9bYHCE pic.twitter.com/acZ6rjLIzR
The Conservative Party have welcomed the news:The Conservative Party have welcomed the news:
.@ONS figures show lowest net government borrowing since the financial year ending March 2007 - we've reduced Labour's record budget deficit by over 3/4s, meaning our economy is more resilient and we're able to invest more in our public services.@ONS figures show lowest net government borrowing since the financial year ending March 2007 - we've reduced Labour's record budget deficit by over 3/4s, meaning our economy is more resilient and we're able to invest more in our public services
(yes, that’s the same Conservative Party that once hoped to eliminate the entire deficit by 2015)(yes, that’s the same Conservative Party that once hoped to eliminate the entire deficit by 2015)
Newsflash: UK government borrowing fell last month as the long, slow process of fixing the public finances continues.Newsflash: UK government borrowing fell last month as the long, slow process of fixing the public finances continues.
Britain borrowed £5bn to balance the books in May, the Office for National Statistic reports. That’s down from around £7bn in May 2017 and is the lowest borrowing for any May since 2005.Britain borrowed £5bn to balance the books in May, the Office for National Statistic reports. That’s down from around £7bn in May 2017 and is the lowest borrowing for any May since 2005.
In April and May combined, Britain has borrowed £11.8bn. That’s £4.1bn less than a year ago, and the best start to a financial year since 2007 (before the financial crisis).In April and May combined, Britain has borrowed £11.8bn. That’s £4.1bn less than a year ago, and the best start to a financial year since 2007 (before the financial crisis).
This improvement is due to rising tax revenues, the ONS explains:This improvement is due to rising tax revenues, the ONS explains:
In the latest financial year-to-date, central government received £112.9 billion in income, including £82.6 billion in taxes. This was around 3% more than in the same period in 2017.In the latest financial year-to-date, central government received £112.9 billion in income, including £82.6 billion in taxes. This was around 3% more than in the same period in 2017.
Over the same period, central government spent £123.6 billion, roughly equal to that spent in the same period in 2017. 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 £123.6 billion, roughly equal to that spent in the same period in 2017. 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.
In another boost, last year’s deficit has been revised down to £39.5bn, down from £40.5bn. That’s the lowest net borrowing since the financial year ending March 2007.In another boost, last year’s deficit has been revised down to £39.5bn, down from £40.5bn. That’s the lowest net borrowing since the financial year ending March 2007.
Overall, Britain’s national debt stands at £1.8 trillion, or around 85% of GDP.Overall, Britain’s national debt stands at £1.8 trillion, or around 85% of GDP.
UK Public Finances: Debt (PSND ex) £1,781.4bn (85.0% of GDP) at end of May 2018 or £1,587.3bn (75.8% of GDP) excluding BoE (mainly quantitative easing) https://t.co/jUgfVdpLpB pic.twitter.com/HhBtVqPJXUUK Public Finances: Debt (PSND ex) £1,781.4bn (85.0% of GDP) at end of May 2018 or £1,587.3bn (75.8% of GDP) excluding BoE (mainly quantitative easing) https://t.co/jUgfVdpLpB pic.twitter.com/HhBtVqPJXU
Economists are all-but certain that the Bank of England won’t raise interest rates today.Economists are all-but certain that the Bank of England won’t raise interest rates today.
City AM’s ‘shadow MPC’ of nine City experts unanimously agree that the BoE should hold borrowing costs, given recent mixed economic data and the ongoing Brexit talks.City AM’s ‘shadow MPC’ of nine City experts unanimously agree that the BoE should hold borrowing costs, given recent mixed economic data and the ongoing Brexit talks.
As Simon French, chief economist at Panmure Gordon put it:As Simon French, chief economist at Panmure Gordon put it:
There are three main sources of uncertainty in the UK economy: the source of the first-quarter slowdown, the progress of Brexit negotiations and the impact of higher petrol prices.There are three main sources of uncertainty in the UK economy: the source of the first-quarter slowdown, the progress of Brexit negotiations and the impact of higher petrol prices.
Hold bank rate while assessing these uncertainties further.Hold bank rate while assessing these uncertainties further.
City economists say Bank of England must hold interest rates https://t.co/N4H9GBTbD6 via @CityAMCity economists say Bank of England must hold interest rates https://t.co/N4H9GBTbD6 via @CityAM
Morgan Stanley predict that the Bank of England will hold interest rates today, in a 7-2 split (the same as last month).Morgan Stanley predict that the Bank of England will hold interest rates today, in a 7-2 split (the same as last month).
They also expect the BoE to give a hawkish message in the minutes of the meeting (which are also released at noon).They also expect the BoE to give a hawkish message in the minutes of the meeting (which are also released at noon).
MS’s Jacob Nell and Shreya Chander told clients:MS’s Jacob Nell and Shreya Chander told clients:
June to reiterate May’s wait-and-see message: As usual, we are sceptical of action at a non-Inflation Report meeting, given the lack of a new forecast, and expect an unchanged 7-2 vote to hold.June to reiterate May’s wait-and-see message: As usual, we are sceptical of action at a non-Inflation Report meeting, given the lack of a new forecast, and expect an unchanged 7-2 vote to hold.
Mixed data also makes it unlikely that we get any strong new guidance on August.Mixed data also makes it unlikely that we get any strong new guidance on August.
Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.
The Bank of England is in the spotlight today as its Monetary Policy Committee meets to set interest rates. While borrowing costs probably won’t change today, the City will be looking for hints that the long-awaited hike could come in August.The Bank of England is in the spotlight today as its Monetary Policy Committee meets to set interest rates. While borrowing costs probably won’t change today, the City will be looking for hints that the long-awaited hike could come in August.
The key issue is whether the Bank still believes the recent weakness in UK economic growth is temporary.The key issue is whether the Bank still believes the recent weakness in UK economic growth is temporary.
That slowdown scared the MPC away from raising interest rates last month, forcing investors to rethink their expectations about how fast borrowing costs will rise.That slowdown scared the MPC away from raising interest rates last month, forcing investors to rethink their expectations about how fast borrowing costs will rise.
What to expect on this Bank of England decision day https://t.co/h1RHjHxTlq pic.twitter.com/CxU4dW1WMxWhat to expect on this Bank of England decision day https://t.co/h1RHjHxTlq pic.twitter.com/CxU4dW1WMx
The two hawkish members of the MPC, Michael Saunders and Ian McCafferty, will likely vote for a hike today. The majority, though, will (probably!) decide to leave interest rates at just 0.5%.The two hawkish members of the MPC, Michael Saunders and Ian McCafferty, will likely vote for a hike today. The majority, though, will (probably!) decide to leave interest rates at just 0.5%.
Mike Bell of JP Morgan Asset Management argues that there’s no reason to raise interest rates yet, especially with Brexit uncertainty bubbling away:Mike Bell of JP Morgan Asset Management argues that there’s no reason to raise interest rates yet, especially with Brexit uncertainty bubbling away:
Some lead indicators suggest wage growth could soon start to accelerate, so the case for a rate hike is building.Some lead indicators suggest wage growth could soon start to accelerate, so the case for a rate hike is building.
However, there’s no rush to raise to rates this week given still high political and economic uncertainty.However, there’s no rush to raise to rates this week given still high political and economic uncertainty.
Bank of England today #whatever pic.twitter.com/8Cyd80JguqBank of England today #whatever pic.twitter.com/8Cyd80Jguq
But you never know....But you never know....
It’s also an important day for Greece. The Greek bailout ends in August, so Eurozone finance ministers will discuss what debt relief measures are needed to help Athens return to the financial markets.It’s also an important day for Greece. The Greek bailout ends in August, so Eurozone finance ministers will discuss what debt relief measures are needed to help Athens return to the financial markets.
The Greek government is hoping for substantive measures to address its debt pile, which has swelled to 180% of its GDP.The Greek government is hoping for substantive measures to address its debt pile, which has swelled to 180% of its GDP.
Spokesman Dimitris Tzanakopoulos told reporters:Spokesman Dimitris Tzanakopoulos told reporters:
“We are optimistic that we are on the verge of a solution with substance.”“We are optimistic that we are on the verge of a solution with substance.”
Full-blown debt write-offs aren’t on the agenda, but the eurozone could agree to extend the payback data on Greek debt, giving Athens more wriggle-room to recover from years of economic trauma.Full-blown debt write-offs aren’t on the agenda, but the eurozone could agree to extend the payback data on Greek debt, giving Athens more wriggle-room to recover from years of economic trauma.
Tzanakopoulos argues that Greece needs debt relief in order to become an ‘ordinary’ country again:Tzanakopoulos argues that Greece needs debt relief in order to become an ‘ordinary’ country again:
“The accepted criteria for all sides is that this solution be convincing for markets and embed the creditworthiness of our country - the final act in restoring the credibility of Greece to be able to plan for the next day like any ordinary country.“The accepted criteria for all sides is that this solution be convincing for markets and embed the creditworthiness of our country - the final act in restoring the credibility of Greece to be able to plan for the next day like any ordinary country.
The eurogroup will also discuss what ‘surveillance’ measures should be imposed on Greece, to ensure it keeps meeting its commitments even after the bailout is over.The eurogroup will also discuss what ‘surveillance’ measures should be imposed on Greece, to ensure it keeps meeting its commitments even after the bailout is over.
Good morning. Today could be a Big Greek Day if the Eurogroup signs off the end of the Greek bailout. Most critical (and still open) issues: further debt restructuring and post-bailout surveillance.Good morning. Today could be a Big Greek Day if the Eurogroup signs off the end of the Greek bailout. Most critical (and still open) issues: further debt restructuring and post-bailout surveillance.
We’ll also keep an eye on Vienna, where Opec members are gathering for tomorrow’s meeting. Some oil ministers (including the Saudis) are pushing for a deal to raise oil output, but others are keener to maintain current production caps....and keep prices higher.We’ll also keep an eye on Vienna, where Opec members are gathering for tomorrow’s meeting. Some oil ministers (including the Saudis) are pushing for a deal to raise oil output, but others are keener to maintain current production caps....and keep prices higher.
Plus, the latest UK public finances will show how much Britain borrowed last month.Plus, the latest UK public finances will show how much Britain borrowed last month.
Here’s the agenda:Here’s the agenda:
9.30am BST: UK public finances for July9.30am BST: UK public finances for July
Noon BST: Bank of England interest rate decisionNoon BST: Bank of England interest rate decision
2pm BST: Eurogroup meeting on Greece begins2pm BST: Eurogroup meeting on Greece begins