UK Government Borrowing in April Hits Lowest Level Since Before 2008 Financial Crisis

-Government borrowing hits lowest April level since 2008. 

-Annual borrowing at lowest since year ending March 2007.

-Public debt to GDP at 85.1%, below OBR forecast of 85.6%.

© Foreign & Commonwealth Office, reproduced under CC licensing.

The UK government budget deficit fell to its lowest level since before the financial crisis during April, according to Office for National Statistics data released Tuesday, with total borrowing and overall debt as a portion of gross domestic product coming in below Office for Budget Responsibility forecasts.

Government borrowing came in at £7.8 billion for the April 2018 month when borrowing associated with public sector banks such as RBS Group is excluded, which is 12% less than in April 2017 and the lowest April figure since the 2008 year. Economists had forecast borrowing of £8.6 billion during April.

This left public sector net debt at £1.77 trillion, or 85.1% of gross domestic product, which is below the OBR's forecast for net debt to reach 85.6% of GDP during the recent year. Net government debt was equal to 86% of GDP at the end of April 2017.

For the year overall, HM Treasury borrowed £40.5 billion in the 12 months to the end of March 2018, which is £4.7 billion lower than in the previous year and marks the lowest level of annual net borrowing since the year ending March 2007.

"April’s public finances figures have got the new fiscal year off to a good start and suggest that the Chancellor might have more elbow room to loosen the purse strings in the Autumn Budget," says Ruth Gregory, an economist at Capital Economics. "It’s early days yet, but at this rate, borrowing will undershoot the OBR’s 2018/19 forecast by £2bn or so."

Tuesday's data comes at what is now a pivotal point for the UK economy, with growth having slowed markedly during the first-quarter of the year. UK GDP growth was just 0.1% during the three months to the end of March, down from the 0.4% seen at the end of 2017.

The slowdown has so-far prompted the Bank of England to abandon a May interest rate rise, hobbling Sterling, and has economists keeping a wary eye on the latest data for signs the slowdown persisted into the second-quarter.

As it happens, it is not uncommon for the UK economy to slow at the start of a year. Quarterly growth slowed to 0.2% during the first half of 2017 before rising to 0.4% for the second half of the year.

"Given the time lags involved, the slowing in the economy in Q1 will probably have some adverse impact on the public finances in the months ahead. However, we expect this slowdown to be temporary, so it shouldn’t knock the fiscal improvement off course," Gregory adds.

The Office for Budget Responsibility forecasts that UK net government debt will rise to 85.5% of GDP for the year ending in March 2019, before falling progressively in each year thereafter, but Gregory says this is too gloomy a prediction. 

Gregory and the Capital Economics team forecast UK government debt will come in a fraction below the OBR forecast for the current year but that actual borrowing in subsequent periods could be as much as £10 billion per year lower than the OBR suggests as the budget watchdog's forecasts for UK economic growth are also "too gloomy".  

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