UK Public Borrowing: First July Surplus Since 2002 but Hammond Left with Little Wriggle Room

UK public sector net borrowing (excluding public sector banks) was in surplus by £0.2 billion in July 2017, the first July surplus since 2002, report the Office for National Statistics. The consensus forecast was for a £1bn deficit so this is certainly a positive surprise.

Borrowing in July 2016 was at £0.3 billion.

The full-year deficit estimate for fiscal year 2016-17 was revised down from £46.2 to £45.1bn.

However the overall 2016 vs 2017 comparison shows the UK is still borrowing more; public sector net borrowing (excluding public sector banks) increased by £1.9 billion to £22.8 billion in the current financial year-to-date (April 2017 to July 2017), compared with the same period in 2016.

The July data which confirms a surplus is nevertheless welcome, even if it is likely to be proven as a temporary blip.

“July’s public finance figures showed an improvement on last year, but this will probably prove to be just a temporary blip,” says Ruth Gregory, UK Economist at Capital Economics.

Capital Economics warn against getting too carried away by the borrowing figures for the first few months of the fiscal year as they are based on a significant amount of forecast data.

“And some one-off effects distorted the annual comparison in July, as self-assessment receipts were boosted by the July 31st deadline falling on a Monday this year, but Sunday in 2016, meaning that some receipts were recorded in August last year,” says Gregory.

What’s more, cumulative borrowing in the first four months of the fiscal year at £22.8bn was still some 9% higher than the £20.9bn seen last year, with the OBR expecting a further deterioration later in the fiscal year.

“As such, despite July’s strength the Chancellor may still find that he has little scope for any easing back on the planned fiscal squeeze in his November Budget,” says Gregory.