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UK's June budget deficit hits four-year high as government spending rises - business live UK's June budget deficit hits four-year high as government spending rises - business live
(32 minutes later)
Bloomberg’s Jill Ward points out that the cost of servicing Britain’s national debt rose in June -- helping to push the deficit higher.
Spending including capital investment rose 7.2%, boosted by debt interest costs -- higher RPI pushed up payments on inflation-linked bonds -- and government outlays on goods and services.
Receipts rose 1.5%, with dividends and national-insurance contributions driving the increase. Excluding these categories, tax income was virtually unchanged.
Britain posts its largest June budget deficit in four years as spending surged and taxes failed to grow https://t.co/xvas4ebsyn
A no-deal Brexit crisis would make the UK public finances look even worse, points out Mike Jakeman, senior economist at PwC:
There remains an unusual amount of uncertainty around the short-term future of the public finances at present. A no-deal Brexit would hit both government revenue (through lower tax receipts) and expenditure (through the need for fiscal stimulus package). The government would be likely to have to reconsider its medium-term targets for the deficit and debt.
But even if a no-deal Brexit is avoided, a new chancellor is likely to bring new priorities and, with a spending review on the horizon, could sanction a period of looser fiscal policy.”
Britain’s public finances appear to be ‘heading off track’, warns Ruth Gregory of Capital Economics.
She says the jump in borrowing last month, from £3.3bn to £7.2nbn, shows that Britain is set to miss its borrowing targets for the 2019-20 financial.
That will leave Boris Johnson or Jeremy Hunt with less wriggle-room to fund some of their campaign promises, such as tax cuts or public sector pay increases -- unless they rip up the government’s borrowing targets.
Gregory explains:
June’s public finance figures continued the underlying deterioration in the fiscal position evident since the beginning of the financial year, providing a timely reminder that the new PM won’t get a free “fiscal lunch”.
Public sector net borrowing (ex. public sector banks) of £7.2bn in June was well above the consensus expectation of £3.9bn and last year’s figure of £3.3bn. This reflected subdued receipts growth of 1.2%, compared to the 2.9% expected by the OBR for the year as a whole and a 7.0% y/y jump in current expenditure. As a result, borrowing in the first three months of the fiscal year, of £17.9bn, was £4.5bn higher than last year. If this trend persists over the remaining nine months of the fiscal year, PSNB ex. would overshoot the OBR’s 2019/20 forecast of £29.3bn, by £2.1bn.
There will be further bad news for the new PM in September as a change in the accounting treatment of student loans in September will raise the deficit by more than £10bn a year. And yesterday’s report by the OBR showing that a no deal would push up borrowing by a further £30bn a year could remove the room for tax cuts/spending rises in a no deal scenario. However, we doubt any of this will prevent the new PM from loosening fiscal policy. Just how far borrowing rises will depend on whether there is a deal or a no deal, or a delay.
Economist Rupert Seggins shows how government spending has outpaced the tax take this financial year:
UK public setor borrowing up £4.5bn to £17.9bn in the 3 months to June. Appears mainly down to increased spending on purchases of goods & services (+£3.2bn), interest payments (+£1.8bn) & staff costs (+1.3bn) meaning overall spending outstripped a £4.9bn increase in receipts. pic.twitter.com/G9OB3ODd6O
Growth in total central government receipts has slowed this financial year, from 4.5% to 2.9%. Largely down to the lower contributions from VAT (1.7% to 0.8%) & corporation tax (0.8% to 0%). pic.twitter.com/3X7cv2QCO9
John McDonnell MP, Labour’s Shadow Chancellor, is concerned that Britain’s deficit is going up....
“With the Conservatives obsessed with No Deal Brexit and a race to the bottom on taxes, the outlook for our public services after years of austerity is grim.
“Instead of investing to grow they have passed on the deficit to hospitals and local councils, overseeing stagnating wages and productivity.
“Only a Labour Government will deliver the radical transformation that is desperately needed to boost living standards and eliminate in-work poverty.”
June’s budget deficit figures are much worst than expected, points out Helia Ebrahimi of Channel 4.June’s budget deficit figures are much worst than expected, points out Helia Ebrahimi of Channel 4.
Wow just out UK govt deficit doubles in June compared to same time last yr says @ONS £7.2bn borrowing in June up £3.8bnWow just out UK govt deficit doubles in June compared to same time last yr says @ONS £7.2bn borrowing in June up £3.8bn
Govt deficit in first 3 months of FY now £17.9bn, up a third on last year says @ONS still time for figures to turn around but weak economic backdrop won’t helpGovt deficit in first 3 months of FY now £17.9bn, up a third on last year says @ONS still time for figures to turn around but weak economic backdrop won’t help
The rising deficit may limit the next prime minister’s ability to deliver tax cuts or spending increases, unless they’re happy to drive borrowing higher.The rising deficit may limit the next prime minister’s ability to deliver tax cuts or spending increases, unless they’re happy to drive borrowing higher.
UK budget deficit up by a third in first 3 months of 2019/20 tax year - not a good starting point given Johnson and Hunt’s “expensive” spending pledges https://t.co/ccgOzsxibYUK budget deficit up by a third in first 3 months of 2019/20 tax year - not a good starting point given Johnson and Hunt’s “expensive” spending pledges https://t.co/ccgOzsxibY
The surge in borrowing in June suggests Britain could miss its borrowing targets this financial year.The surge in borrowing in June suggests Britain could miss its borrowing targets this financial year.
The UK was expected to borrow £29.3bn in the 2019-20 financial year, up from £23.5bn in the 12 months to March.The UK was expected to borrow £29.3bn in the 2019-20 financial year, up from £23.5bn in the 12 months to March.
Just three months into the financial year, and Britain has already borrowed £17.9bn, compared with £13.5bn at this stage a year ago.Just three months into the financial year, and Britain has already borrowed £17.9bn, compared with £13.5bn at this stage a year ago.
Newsflash: Britain’s budget deficit is rising faster than planned, after the government was forced to borrow more than seven billion pounds last month to balance the books.Newsflash: Britain’s budget deficit is rising faster than planned, after the government was forced to borrow more than seven billion pounds last month to balance the books.
That’s the largest deficit for a June in four years, and suggests that the UK’s fiscal position may be weakening ahead of the Brexit vote.That’s the largest deficit for a June in four years, and suggests that the UK’s fiscal position may be weakening ahead of the Brexit vote.
The increase in borrowing was driven by a large jump in public spending.The increase in borrowing was driven by a large jump in public spending.
Total central government expenditure rose by £4.3bn compared with a year ago, while government income (ie from tax receipts) only rose by £800m.Total central government expenditure rose by £4.3bn compared with a year ago, while government income (ie from tax receipts) only rose by £800m.
That lifted the deficit by £3.8bn, from £3.2bn in 2018 to £7.2bn in June 2019.That lifted the deficit by £3.8bn, from £3.2bn in 2018 to £7.2bn in June 2019.
The Office for National Statistics reports:The Office for National Statistics reports:
Borrowing (public sector net borrowing excluding public sector banks) in June 2019 was £7.2 billion, £3.8 billion more than in June 2018; the highest June borrowing since 2015.Borrowing (public sector net borrowing excluding public sector banks) in June 2019 was £7.2 billion, £3.8 billion more than in June 2018; the highest June borrowing since 2015.
Borrowing in the current financial year-to-date (April 2019 to June 2019) was £17.9 billion, £4.5 billion more than in the same period last year; the financial year-to-date April 2018 to June 2018 remains the lowest borrowing for that period since 2007.Borrowing in the current financial year-to-date (April 2019 to June 2019) was £17.9 billion, £4.5 billion more than in the same period last year; the financial year-to-date April 2018 to June 2018 remains the lowest borrowing for that period since 2007.
More to follow....More to follow....
Iran insists that America has not shot down one of its drones... and is now suggesting that US forces could have downed one of their own!Iran insists that America has not shot down one of its drones... and is now suggesting that US forces could have downed one of their own!
The deputy foreign minister, Abbas Araqchi, tweeted that he was “worried” that the USS Boxer had accidentally hit one of its own side’s unmanned aerial systems (UAS).The deputy foreign minister, Abbas Araqchi, tweeted that he was “worried” that the USS Boxer had accidentally hit one of its own side’s unmanned aerial systems (UAS).
We have not lost any drone in the Strait of Hormuz nor anywhere else. I am worried that USS Boxer has shot down their own UAS by mistake!We have not lost any drone in the Strait of Hormuz nor anywhere else. I am worried that USS Boxer has shot down their own UAS by mistake!
This has taken some of the heat out of the gold price, which has dipped back to $1,440 per ounce.This has taken some of the heat out of the gold price, which has dipped back to $1,440 per ounce.
The oil price has jumped 1% today, after America claimed to have shot down an Iranian drone.The oil price has jumped 1% today, after America claimed to have shot down an Iranian drone.
Brent crude has risen to $62.645 per barrel, reversing several day of losses, as investors brace for more skirmishes in the Gulf region.Brent crude has risen to $62.645 per barrel, reversing several day of losses, as investors brace for more skirmishes in the Gulf region.
Cailin Birch, Global analyst at The Economist Intelligence Unit, says they’re right to worry:Cailin Birch, Global analyst at The Economist Intelligence Unit, says they’re right to worry:
“Reports that the US brought down an Iranian drone in the Strait of Hormuz will escalate tensions even further. Iranian officials have thus far taken care not to react to the incident in a way that provoke further conflict; officials’ immediate response was to deny that any Iranian aircraft had been lost. Nonetheless, Iran has made it clear in recent weeks that it rejects any Western presence in the Strait of Hormuz--officials warned the UK to withdraw its ships from the region earlier this month, saying that it could ensure regional security alone. The latest skirmish with the US is likely to put Iran even more on guard.“Reports that the US brought down an Iranian drone in the Strait of Hormuz will escalate tensions even further. Iranian officials have thus far taken care not to react to the incident in a way that provoke further conflict; officials’ immediate response was to deny that any Iranian aircraft had been lost. Nonetheless, Iran has made it clear in recent weeks that it rejects any Western presence in the Strait of Hormuz--officials warned the UK to withdraw its ships from the region earlier this month, saying that it could ensure regional security alone. The latest skirmish with the US is likely to put Iran even more on guard.
We still do not expect either party to willingly enter into open conflict; Iran is ill equipped to wage an expensive conflict, and doing so would probably alienate its remaining allies in Europe. The US government will not want to start a deeply unpopular foreign conflict just as the campaign season ramps up for 2020. However, the risk of a policy miscalculation remains high in this heated environment, meaning that more skirmishes are likely in the coming weeks.”We still do not expect either party to willingly enter into open conflict; Iran is ill equipped to wage an expensive conflict, and doing so would probably alienate its remaining allies in Europe. The US government will not want to start a deeply unpopular foreign conflict just as the campaign season ramps up for 2020. However, the risk of a policy miscalculation remains high in this heated environment, meaning that more skirmishes are likely in the coming weeks.”
Billionaire investor Ray Dalio has fuelled the gold boom this week, arguing that investors should pile into the precious metal.Billionaire investor Ray Dalio has fuelled the gold boom this week, arguing that investors should pile into the precious metal.
In a blogpost, Dalio argued that gold was a sensible asset to invest in, as geopolitical tensions are rising and central bankers are likely to ease monetary policy to ward off a slowdown.In a blogpost, Dalio argued that gold was a sensible asset to invest in, as geopolitical tensions are rising and central bankers are likely to ease monetary policy to ward off a slowdown.
He wrote:He wrote:
“Those [investments] that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.“Those [investments] that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.
Dalio also pointed to the slump in government bond yields, as investors have piled into safe-haven assets such as German debt:Dalio also pointed to the slump in government bond yields, as investors have piled into safe-haven assets such as German debt:
I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”
Gold struck its all-time high back in 2011, after the financial crisis, when it peaked over $1,900.Gold struck its all-time high back in 2011, after the financial crisis, when it peaked over $1,900.
We’re nowhere near those levels yet, but Fawad Razaqzada, market analyst at Forex.com, suspects bullion will keep rising through 2019.We’re nowhere near those levels yet, but Fawad Razaqzada, market analyst at Forex.com, suspects bullion will keep rising through 2019.
He cites the weakening US dollar (which pushes up commodity prices) and the fact that bonds provide so little income at present.He cites the weakening US dollar (which pushes up commodity prices) and the fact that bonds provide so little income at present.
The underlying trend is bullish for gold and silver, due to the falling government bond yields and the recent struggles for the dollar and stocks. So, as things stand, these are good times for buck-denominated and noninterest-bearing precious metals.The underlying trend is bullish for gold and silver, due to the falling government bond yields and the recent struggles for the dollar and stocks. So, as things stand, these are good times for buck-denominated and noninterest-bearing precious metals.
Stock markets are taking a cue from gold this morning, with gains across the globe.Stock markets are taking a cue from gold this morning, with gains across the globe.
Japan’s Nikkei has jumped 2%, and China’s CSI 300 index gained 1%, on hope of a US interest rate cut soon.Japan’s Nikkei has jumped 2%, and China’s CSI 300 index gained 1%, on hope of a US interest rate cut soon.
In London, the FTSE 100 has jumped by 48 points, or 0.6%, to 7,543.In London, the FTSE 100 has jumped by 48 points, or 0.6%, to 7,543.
Global mkts switch into Risk On mode as Fed props up rate cut expectations and on better tech earnings. Bets rise on 50 bp reduction in Jul w/ dovish comments from Fed's Williams. US yields fall, Gold hits 6y high. Oil bounces after US Navy destroyed Iranian drone. Bitcoin >10k. pic.twitter.com/kTKTK4uQDYGlobal mkts switch into Risk On mode as Fed props up rate cut expectations and on better tech earnings. Bets rise on 50 bp reduction in Jul w/ dovish comments from Fed's Williams. US yields fall, Gold hits 6y high. Oil bounces after US Navy destroyed Iranian drone. Bitcoin >10k. pic.twitter.com/kTKTK4uQDY
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Gold, that perennial barometer of investor nervousness, has hit a six-year high today.Gold, that perennial barometer of investor nervousness, has hit a six-year high today.
Bullion jumped through $1,450 per ounce for the first time since May 2013, extending its recent gains.Bullion jumped through $1,450 per ounce for the first time since May 2013, extending its recent gains.
This means gold has now surged by 25% since last August, a sparkling run that outpaces most other assets.This means gold has now surged by 25% since last August, a sparkling run that outpaces most other assets.
The rally is being driven by several factors. One is that America’s central bank seems certain to cut interest rates later this month. That would be inflationary -- and gold is seen as a store of value in such times.The rally is being driven by several factors. One is that America’s central bank seems certain to cut interest rates later this month. That would be inflationary -- and gold is seen as a store of value in such times.
There’s even chatter that the Federal Reserve could slash borrowing costs by half a percentage point, rather than the typical quarter-point cut.There’s even chatter that the Federal Reserve could slash borrowing costs by half a percentage point, rather than the typical quarter-point cut.
John Williams, the vice chairman of the Fed’s policy-setting board, raised these rate cut hopes on Thursday when he said policymakers need to be pro-active, rather than waiting for a disaster to unfold.John Williams, the vice chairman of the Fed’s policy-setting board, raised these rate cut hopes on Thursday when he said policymakers need to be pro-active, rather than waiting for a disaster to unfold.
Comparing monetary policy to vaccination, Williams said:Comparing monetary policy to vaccination, Williams said:
It’s better to deal with the short-term pain of a shot than to take the risk that they’ll contract a disease later on.”It’s better to deal with the short-term pain of a shot than to take the risk that they’ll contract a disease later on.”
Gold’s popularity also comes as government bond prices surge to record highs. Many are now trading with negative yields, meaning investors are guaranteed to lose money if they hold the debt until it matures. Gold doesn’t pay a dividend or a coupon, but can still deliver a profit if prices keep rising.Gold’s popularity also comes as government bond prices surge to record highs. Many are now trading with negative yields, meaning investors are guaranteed to lose money if they hold the debt until it matures. Gold doesn’t pay a dividend or a coupon, but can still deliver a profit if prices keep rising.
Gold is also popular when geopolitical tensions escalate. The news that America says it has shot down an Iranian drone over the Strait of Hormuz yesterday (which Tehran denies) has worried investors, given recent attacks on oil tankers in the Gulf region.Gold is also popular when geopolitical tensions escalate. The news that America says it has shot down an Iranian drone over the Strait of Hormuz yesterday (which Tehran denies) has worried investors, given recent attacks on oil tankers in the Gulf region.
I want to apprise everyone of an incident in the Strait of Hormuz today, involving #USSBoxer, a U.S. Navy amphibious assault ship. The BOXER took defensive action against an Iranian drone.... pic.twitter.com/Zql6nAUGxFI want to apprise everyone of an incident in the Strait of Hormuz today, involving #USSBoxer, a U.S. Navy amphibious assault ship. The BOXER took defensive action against an Iranian drone.... pic.twitter.com/Zql6nAUGxF
Nicholas Frappell, global general manager at ABC Bullion, says gold was further lifted by Iran announcing the capture of a foreign oil-smuggling tanker in the Gulf:Nicholas Frappell, global general manager at ABC Bullion, says gold was further lifted by Iran announcing the capture of a foreign oil-smuggling tanker in the Gulf:
“The extra push for gold prices came from comments by NY Fed President John Williams which implied quite aggressive rate-cutting, plus the Iranian drone news and the seizure of a tanker by the Iranians in the Straits of Hormuz.”“The extra push for gold prices came from comments by NY Fed President John Williams which implied quite aggressive rate-cutting, plus the Iranian drone news and the seizure of a tanker by the Iranians in the Straits of Hormuz.”
Iran says it has seized foreign oil tanker in GulfIran says it has seized foreign oil tanker in Gulf
More to follow...More to follow...
Also coming up todayAlso coming up today
We learn how much Britain borrowed to balance the books last month, plus get a new gauge on American consumer confidence.We learn how much Britain borrowed to balance the books last month, plus get a new gauge on American consumer confidence.
The agendaThe agenda
9.30am BST: UK public finances for June (£3.9bn deficit expected)9.30am BST: UK public finances for June (£3.9bn deficit expected)
3pm BST: University of Michigan’s survey of US consumer confidence3pm BST: University of Michigan’s survey of US consumer confidence