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| UK records biggest July budget surplus since 2000 - as it happened | UK records biggest July budget surplus since 2000 - as it happened |
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| It’s been a good day for UK chancellor Philip Hammond as far as the country’s public finances go, with the best July budget surplus for 18 years. | It’s been a good day for UK chancellor Philip Hammond as far as the country’s public finances go, with the best July budget surplus for 18 years. |
| But factory growth was less impressive in August, according to the CBI. | But factory growth was less impressive in August, according to the CBI. |
| Meanwhile the dollar has weakened after President Trump took the Federal Reserve to task for continuing to raise interest rates. | Meanwhile the dollar has weakened after President Trump took the Federal Reserve to task for continuing to raise interest rates. |
| And in Greece, prime minister Alexis Tsipras has said Greece is at the beginning of a new era following its exit from its longstanding bailout programme. | And in Greece, prime minister Alexis Tsipras has said Greece is at the beginning of a new era following its exit from its longstanding bailout programme. |
| On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow. | On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow. |
| Back with the dollar and Donald Trump’s criticism of the Fed, Capital Index research director Kathleen Brooks said: | Back with the dollar and Donald Trump’s criticism of the Fed, Capital Index research director Kathleen Brooks said: |
| It is interesting that the foreign exchange market has reacted so strongly to Trump’s dollar comments. A mere 5 days ago the same President said that ‘money is pouring into our cherished DOLLAR like rarely before’, usually when money pours into a currency that currency tends to appreciate. Also, back in January he said that ultimately he wanted a strong dollar. If you base your FX trading strategy on President Trump’s musings on the dollar, you may as well be a Trump contrarian as the chances are he will reverse his view in a few days. | It is interesting that the foreign exchange market has reacted so strongly to Trump’s dollar comments. A mere 5 days ago the same President said that ‘money is pouring into our cherished DOLLAR like rarely before’, usually when money pours into a currency that currency tends to appreciate. Also, back in January he said that ultimately he wanted a strong dollar. If you base your FX trading strategy on President Trump’s musings on the dollar, you may as well be a Trump contrarian as the chances are he will reverse his view in a few days. |
| A decision by Moody’s rating agency to postpone a review of Italy’s credit status seems to have given the country a lift. Reuters reports: | A decision by Moody’s rating agency to postpone a review of Italy’s credit status seems to have given the country a lift. Reuters reports: |
| Italian government bonds rallied on Tuesday after Moody’s extended the deadline for its review of the country’s rating, providing some relief for investors who expected a downgrade imminently. | Italian government bonds rallied on Tuesday after Moody’s extended the deadline for its review of the country’s rating, providing some relief for investors who expected a downgrade imminently. |
| Moody’s, which last month placed Italy’s “Baa2” rating on a review for a downgrade, said it was pushing back its decision to gain “greater clarity on (Italy’s) fiscal path and reform agenda”. | Moody’s, which last month placed Italy’s “Baa2” rating on a review for a downgrade, said it was pushing back its decision to gain “greater clarity on (Italy’s) fiscal path and reform agenda”. |
| “The Moody’s review is part of the reason why we have a good performance from Italy,” said Natixist bond strategist Jean-Christophe Machado. “It also helps that risk appetite has come back this week.” | “The Moody’s review is part of the reason why we have a good performance from Italy,” said Natixist bond strategist Jean-Christophe Machado. “It also helps that risk appetite has come back this week.” |
| He warned, though, that Italy’s budget, set to be decided in October, could affect the country’s rating if the anti-establishment government announces high spending measures that put it on a collision course with European Union rules. | He warned, though, that Italy’s budget, set to be decided in October, could affect the country’s rating if the anti-establishment government announces high spending measures that put it on a collision course with European Union rules. |
| That said, the postponement also gives investors more time to take advantage of the extra yield Italy is offering, said ING strategist Martin Van Vliet. | That said, the postponement also gives investors more time to take advantage of the extra yield Italy is offering, said ING strategist Martin Van Vliet. |
| Accordingly, Italy’s 10-year government bond yield dropped nine basis points to 2.96 percent, dipping below 3 percent for the first time since August 10. It is also down 16 bps so far this week, its biggest two-day fall in two months. | Accordingly, Italy’s 10-year government bond yield dropped nine basis points to 2.96 percent, dipping below 3 percent for the first time since August 10. It is also down 16 bps so far this week, its biggest two-day fall in two months. |
| The dollar is still in the doldrums after President Trump hit out at the Federal Reserve for raising interest rates. | The dollar is still in the doldrums after President Trump hit out at the Federal Reserve for raising interest rates. |
| The dollar index against a basket of six other currencies is down 0.37% at 95.54, having earlier touched a near two week low of 95.4. | The dollar index against a basket of six other currencies is down 0.37% at 95.54, having earlier touched a near two week low of 95.4. |
| The pound, which has its own problems given the continuing uncertainty about Brexit, is managing to benefit from the dollar’s weakness, and is currently up 0.24% at $1.2817. | The pound, which has its own problems given the continuing uncertainty about Brexit, is managing to benefit from the dollar’s weakness, and is currently up 0.24% at $1.2817. |
| Meanwhile stock markets are drifting, with the FTSE 100 down 0.12% while Germany’s Dax is up 0.64% and France’s Cac has climbed 0.77%. | Meanwhile stock markets are drifting, with the FTSE 100 down 0.12% while Germany’s Dax is up 0.64% and France’s Cac has climbed 0.77%. |
| Over in Greece the government is heralding a new era free from the fiscal oversight of foreign creditors as the debt-stricken country marks its first few hours of post-bailout existence. | Over in Greece the government is heralding a new era free from the fiscal oversight of foreign creditors as the debt-stricken country marks its first few hours of post-bailout existence. |
| In a symbolic gesture Prime minister Alexis Tsipras has flown to the island of Ithaka to hail what he described as “a historic day … a day of redemption.” | In a symbolic gesture Prime minister Alexis Tsipras has flown to the island of Ithaka to hail what he described as “a historic day … a day of redemption.” |
| “Today is a redemption day and the beginning of a new era,” he told the nation in a pre-recorded address overlooking Ithaka’s scenic waters. | “Today is a redemption day and the beginning of a new era,” he told the nation in a pre-recorded address overlooking Ithaka’s scenic waters. |
| Drawing on the symbolism of Ithaka being the island that Odysseus strove to get to after the end of the Trojan war, Tsipras insisted that like the Homeric hero, Greeks had finally ended their “own modern odyssey.” | Drawing on the symbolism of Ithaka being the island that Odysseus strove to get to after the end of the Trojan war, Tsipras insisted that like the Homeric hero, Greeks had finally ended their “own modern odyssey.” |
| It had been an extraordinary time, one unprecedented in peacetime that had seen Greece lose 25 % of its GDP, three in ten of its citizens ejected from the workplace, six out of ten young Greeks also becoming jobless and a staggering €65bn in austerity measures being imposed on the nation. | It had been an extraordinary time, one unprecedented in peacetime that had seen Greece lose 25 % of its GDP, three in ten of its citizens ejected from the workplace, six out of ten young Greeks also becoming jobless and a staggering €65bn in austerity measures being imposed on the nation. |
| “We will never forget what we have experienced … we have reached our destination and we have full knowledge that all is not over. New battles are ahead of us.” | “We will never forget what we have experienced … we have reached our destination and we have full knowledge that all is not over. New battles are ahead of us.” |
| But he added that now that Greeks had reached their “much desired” destination they would have the “strength” to build a country that they deserved, a Greece that not only averted the deficits that had brought it to the brink of bankruptcy but was constructed on equality , democracy and social justice. | But he added that now that Greeks had reached their “much desired” destination they would have the “strength” to build a country that they deserved, a Greece that not only averted the deficits that had brought it to the brink of bankruptcy but was constructed on equality , democracy and social justice. |
| “From today we start the new era of our country with vision and determination...Ithaki is only the beginning,” he said in the address. | “From today we start the new era of our country with vision and determination...Ithaki is only the beginning,” he said in the address. |
| As we reported yesterday Tsipras had originally hoped to mark the day with a visit to Castellorizo, where the country’s debt-drama began with its first bailout being announced, but dismissed that plan when it was felt that it would be more prudent to not overly celebrate the sombre moment. | As we reported yesterday Tsipras had originally hoped to mark the day with a visit to Castellorizo, where the country’s debt-drama began with its first bailout being announced, but dismissed that plan when it was felt that it would be more prudent to not overly celebrate the sombre moment. |
| Slightly less good news for the UK economy from the manufacturing sector. | Slightly less good news for the UK economy from the manufacturing sector. |
| Growth in factory orders slipped to a three month low in August, according to the Confederation of British Industry. Its industrial trends survey showed a balance of +7, down from +11 in July and below the +9 expected. CBI economist Anna Leach said: | Growth in factory orders slipped to a three month low in August, according to the Confederation of British Industry. Its industrial trends survey showed a balance of +7, down from +11 in July and below the +9 expected. CBI economist Anna Leach said: |
| Manufacturing growth remains strong, supported by the lower level of sterling and strong global economy. But risks to that growth remain high in light of international trade tensions and the uncertainty caused by Brexit. | Manufacturing growth remains strong, supported by the lower level of sterling and strong global economy. But risks to that growth remain high in light of international trade tensions and the uncertainty caused by Brexit. |
| Firms will be keen to see urgent progress on the Withdrawal Agreement to lock in transition, which is crucial to continuing frictionless trade as the UK leaves the EU. | Firms will be keen to see urgent progress on the Withdrawal Agreement to lock in transition, which is crucial to continuing frictionless trade as the UK leaves the EU. |
| Make no mistake, a ‘no deal’ scenario would be immensely damaging not just for UK manufacturers, but also the rest of the EU. So both sets of negotiators need to demonstrate flexibility and compromise to protect trade flows worth 600 billion euros each year, particularly against the backdrop of increasing protectionist rhetoric. | Make no mistake, a ‘no deal’ scenario would be immensely damaging not just for UK manufacturers, but also the rest of the EU. So both sets of negotiators need to demonstrate flexibility and compromise to protect trade flows worth 600 billion euros each year, particularly against the backdrop of increasing protectionist rhetoric. |
| #Manufacturing activity remained robust in the three months to August, according to #CBI_ITS https://t.co/hKOY1CbLcf pic.twitter.com/I1w4sMsYSM | #Manufacturing activity remained robust in the three months to August, according to #CBI_ITS https://t.co/hKOY1CbLcf pic.twitter.com/I1w4sMsYSM |
| Here’s our report on the public sector finances: | Here’s our report on the public sector finances: |
| Britain has recorded the biggest July budget surplus since the millennium, giving a boost to Philip Hammond as he considers ways to pay for greater NHS spending in the autumn budget. | Britain has recorded the biggest July budget surplus since the millennium, giving a boost to Philip Hammond as he considers ways to pay for greater NHS spending in the autumn budget. |
| The Office for National Statistics said public sector net borrowing, excluding the state-owned banks, went into surplus for July by £2bn, meaning the government received more in tax income than was spent on public services. | The Office for National Statistics said public sector net borrowing, excluding the state-owned banks, went into surplus for July by £2bn, meaning the government received more in tax income than was spent on public services. |
| The surplus was the biggest recorded for the month of July in 18 years, and outstripped City analysts’ forecasts of about £1.1bn. However, the figures showed strong seasonal inflows of income tax receipts. | The surplus was the biggest recorded for the month of July in 18 years, and outstripped City analysts’ forecasts of about £1.1bn. However, the figures showed strong seasonal inflows of income tax receipts. |
| The government has committed to find ways to finance a £20bn-a-year injection of extra cash into the NHS by 2023-24, with taxpayers expected to face increases when the chancellor delivers his budget. But despite the latest improvement in the public finances, which could help minimise the tax increases, Hammond has committed to delivering a zero annual deficit by the middle of the next decade. | The government has committed to find ways to finance a £20bn-a-year injection of extra cash into the NHS by 2023-24, with taxpayers expected to face increases when the chancellor delivers his budget. But despite the latest improvement in the public finances, which could help minimise the tax increases, Hammond has committed to delivering a zero annual deficit by the middle of the next decade. |
| The latest figures from the ONS showed total borrowing for the financial year so far, beginning in April, was the lowest for 16 years. The government deficit stood at £12.8bn, which is £8.5bn less than in the same period a year ago. | The latest figures from the ONS showed total borrowing for the financial year so far, beginning in April, was the lowest for 16 years. The government deficit stood at £12.8bn, which is £8.5bn less than in the same period a year ago. |
| The full story is here: | The full story is here: |
| UK posts biggest July budget surplus for 18 years | |
| Unsurprisingly, Labour is not impressed with the better than expected budget surplus. Shadow chancellor John McDonnell said: | Unsurprisingly, Labour is not impressed with the better than expected budget surplus. Shadow chancellor John McDonnell said: |
| The Chancellor has passed on the deficit to his colleagues in other departments: record NHS deficits, schools begging parents for money for essentials, and a growing social care crisis. | The Chancellor has passed on the deficit to his colleagues in other departments: record NHS deficits, schools begging parents for money for essentials, and a growing social care crisis. |
| Hard pressed families and underpaid public sector workers have been made to pay for the price of Tory failure on the economy, with brutal cuts to social provision and relentless pay restraint. | Hard pressed families and underpaid public sector workers have been made to pay for the price of Tory failure on the economy, with brutal cuts to social provision and relentless pay restraint. |
| Labour in government will be a government for the many, not the few, will reverse the disastrous Tory austerity agenda and give workers a decent pay increase with our £10 Real Living Wage. | Labour in government will be a government for the many, not the few, will reverse the disastrous Tory austerity agenda and give workers a decent pay increase with our £10 Real Living Wage. |
| The better than expected public finance figures should give chancellor Philip Hammond some room to manoeuvre in the autumn budget, said Ruth Gregory, senior UK economist at Capital Economics: | The better than expected public finance figures should give chancellor Philip Hammond some room to manoeuvre in the autumn budget, said Ruth Gregory, senior UK economist at Capital Economics: |
| If the reduction in borrowing is sustained, public sector net borrowing excluding the banks would undershoot the Office for Budget Responsibility’s 2018/19 forecast by £13bn or so. | If the reduction in borrowing is sustained, public sector net borrowing excluding the banks would undershoot the Office for Budget Responsibility’s 2018/19 forecast by £13bn or so. |
| Admittedly, an undershoot of this magnitude is unlikely. The recent improvement has been partly due to temporary factors, such as the timing of gilt issuance and redemptions. And self-assessment tax receipts – which were the highest July level since records began in 1999 – can shift between July and August. | Admittedly, an undershoot of this magnitude is unlikely. The recent improvement has been partly due to temporary factors, such as the timing of gilt issuance and redemptions. And self-assessment tax receipts – which were the highest July level since records began in 1999 – can shift between July and August. |
| Nonetheless, as things stand, the Chancellor should have some extra money to play with in the Autumn Budget – on top of the scope already contained within his fiscal mandate. And he should be able to deliver the extra funds for the NHS without compromising his fiscal target or having to find savings elsewhere. | Nonetheless, as things stand, the Chancellor should have some extra money to play with in the Autumn Budget – on top of the scope already contained within his fiscal mandate. And he should be able to deliver the extra funds for the NHS without compromising his fiscal target or having to find savings elsewhere. |
| John Hawksworth, chief economist at PwC, said: | John Hawksworth, chief economist at PwC, said: |
| The long hot summer also brought some sunshine for the Chancellor, with the public finances £2bn in surplus in July, the largest such July budget surplus for 18 years. That was not just before the financial crisis, but actually before Gordon Brown started spending the war chest he built up in the late 1990s... | The long hot summer also brought some sunshine for the Chancellor, with the public finances £2bn in surplus in July, the largest such July budget surplus for 18 years. That was not just before the financial crisis, but actually before Gordon Brown started spending the war chest he built up in the late 1990s... |
| Although it is still early days in the current financial year, the latest data point to public borrowing coming in some way below the OBR’s £37.1bn forecast for 2018/19 as a whole. In addition, this year’s structural budget deficit should be comfortably below the Chancellor’s 2% of GDP target for 2020. | Although it is still early days in the current financial year, the latest data point to public borrowing coming in some way below the OBR’s £37.1bn forecast for 2018/19 as a whole. In addition, this year’s structural budget deficit should be comfortably below the Chancellor’s 2% of GDP target for 2020. |
| This better news on the deficit should give the Chancellor a bit more wiggle room when it comes to his Budget in November. But he will still have some tough choices to make, probably including some tax rises, if he is to fund planned increases in NHS spending and to respond to other pressing demands to ease austerity for schools, local councils, prisons, police and other public services. | This better news on the deficit should give the Chancellor a bit more wiggle room when it comes to his Budget in November. But he will still have some tough choices to make, probably including some tax rises, if he is to fund planned increases in NHS spending and to respond to other pressing demands to ease austerity for schools, local councils, prisons, police and other public services. |
| The Institute of Chartered Accountants in England and Wales says the chancellor must start focussing on the long term outlook for the public finances. Ross Campbell, ICAEW Public Sector Director, said: | The Institute of Chartered Accountants in England and Wales says the chancellor must start focussing on the long term outlook for the public finances. Ross Campbell, ICAEW Public Sector Director, said: |
| The continued growth throughout July is in line with projected forecasts for 2018. However, when the government comes back from the summer in September there will be a lot to do. The publication of the 2018 Fiscal Sustainability Report by the Office from Budget Responsibility has made clear that the public sector finances are not sustainable over the long run and with interest rates rising the prospect for the government being able to meet its obligations does not appear promising. Alongside this, there is economic uncertainty and increasing pressure on the Government to strike a deal with the EU over the ever looming exit. | The continued growth throughout July is in line with projected forecasts for 2018. However, when the government comes back from the summer in September there will be a lot to do. The publication of the 2018 Fiscal Sustainability Report by the Office from Budget Responsibility has made clear that the public sector finances are not sustainable over the long run and with interest rates rising the prospect for the government being able to meet its obligations does not appear promising. Alongside this, there is economic uncertainty and increasing pressure on the Government to strike a deal with the EU over the ever looming exit. |
| The UK state is like a just about managing household, struggling to pay the rising bills for public services and with nothing put by for emergencies. The Chancellor must start focusing more on the long-term to ensure that public sector finances are put on a sustainable footing. | The UK state is like a just about managing household, struggling to pay the rising bills for public services and with nothing put by for emergencies. The Chancellor must start focusing more on the long-term to ensure that public sector finances are put on a sustainable footing. |
| Here is the Treasury response to the latest UK data: | Here is the Treasury response to the latest UK data: |
| We have made great progress repairing the public finances. | We have made great progress repairing the public finances. |
| Thanks to the hard work of the British people, government borrowing is down by three quarters and debt is due to begin its first sustained fall in a generation. | Thanks to the hard work of the British people, government borrowing is down by three quarters and debt is due to begin its first sustained fall in a generation. |
| But we cannot be complacent, and we must keep debt falling to build a stronger economy and secure a brighter future for the next generation. | But we cannot be complacent, and we must keep debt falling to build a stronger economy and secure a brighter future for the next generation. |
| Public borrowing in the first four months of this yr has been 40% lower than in 17/18. Even stripping out volatile interest payments and EU contributions, deficit 25% lower. Upshot: Chancellor will be able to run neutral fiscal policy in 2019 and 2020 and still meet his targets pic.twitter.com/e4p9gP0P9x | Public borrowing in the first four months of this yr has been 40% lower than in 17/18. Even stripping out volatile interest payments and EU contributions, deficit 25% lower. Upshot: Chancellor will be able to run neutral fiscal policy in 2019 and 2020 and still meet his targets pic.twitter.com/e4p9gP0P9x |
| UK Public Finances: Borrowing (PSNB ex) in current financial year-to-date was £12.8 billion: £8.5 billion less than in the same period in 2017; lowest year-to-date for 16 years (2002) https://t.co/I314qlS342 pic.twitter.com/Cg3y6ZERiA | UK Public Finances: Borrowing (PSNB ex) in current financial year-to-date was £12.8 billion: £8.5 billion less than in the same period in 2017; lowest year-to-date for 16 years (2002) https://t.co/I314qlS342 pic.twitter.com/Cg3y6ZERiA |
| UK Public Finances: Borrowing (PSNB ex) in July 2018 was £2.0 billion in surplus; a £1.0 billion larger surplus than in July 2017; largest July surplus for 18 years (2000) https://t.co/wVw9WsAVfn pic.twitter.com/3NRYCBmh3d | UK Public Finances: Borrowing (PSNB ex) in July 2018 was £2.0 billion in surplus; a £1.0 billion larger surplus than in July 2017; largest July surplus for 18 years (2000) https://t.co/wVw9WsAVfn pic.twitter.com/3NRYCBmh3d |