Good News as UK Public Borrowing Comes in Lower than Forecast

If the current trend in the public finances continues, then borrowing would undershoot the OBR’s forecast by £13bn for this fiscal year.

The Office of National Statistics (ONS) released government borrowing data which showed a fall in borrowing compared to the same month in the previous year, and below what economists had forecast.

Public sector net borrowing (excluding public sector banks) decreased to 5.7bn in August 2017, a fall of 1.3bn compared with August 2016.

This is the lowest net borrowing in the month of August since 2007, says the ONS.

The figure is also below the 6.5bn consensus forecast.

Nevertheless, it represents a rise in borrowing from July 2017 when the government did not, in fact, have to borrow anything as tax receipts outweighed spending by 1.29bn.

Early indications point to a positive reception by analysts.

Capital Economics’ UK Economist Paul Hollingsworth said it meant borrowing in the 2017 financial year would probably now be lower than estimated, giving the government more spare money with which to help cash-strapped consumers.

"August’s public finances figures will come as welcome news to the Chancellor in the lead up to November’s Budget and further increases the scope to ease back on austerity a touch,” he said in a note following the release.

Augusts figure of 5.7bn was considerably below the Capital’s consensus expectation of 7.1bn.

It leaves cumulative borrowing in the first five months of the fiscal year at 28.3bn, which is 0.7% lower than the same period a year ago.

The government’s fiscal discipline means it will probably manage to avoid the OBR’s (Office of Budgetry Responsibility’s) negative expectations for public finances in 2017, with Hollingsworth reminding us that “the OBR expected borrowing to rise by 13% this year."

Although Hollingsworth thinks the OBR’s expectations will not be fulfilled and that borrowing may actually fall rather than rise in the current year, he adds the proviso that borrowing could increase towards the end of the year due to a fall in tax reciepts because to changes in the way revenue on dividends is collected.

"What’s more, the public finances figures early in the fiscal year are prone to significant revisions and so should be treated with some caution,” adds Hollingsworth.

He also notes how the recent rise in Gilt yields will increase debt interest repayments.

Yet overall borrowing is on track in the current financial year.

“Nonetheless, if the trend in the public finances seen so far this fiscal year continues, then borrowing would undershoot the OBR’s forecast by £13bn,” said Hollingsworth.

This should give the chancellor more money with which to ease the current “squeeze on real incomes.”

In the Year Before Borrowing Declined

In the financial year which ended in March 2017 government borrowing decreased significantly.

"Public sector net borrowing (excluding public sector banks) decreased by £27.6 billion to £45.6 billion in the financial year ending March 2017 (April 2016 to March 2017) compared with the financial year ending March 2016; this is the lowest net borrowing since the financial year ending March 2008,” said the OBR. 

Overall government debt stands at 1617.6bn at the end of August 2017 (excluding debt in public sector banks and money the government owes the Bank of England), which amounts to 80.3% of GDP.

This represents an increase of £42.2 billion (or a decrease of 0.5 percentage points as a ratio of GDP) on August 2016.